Let us get right into it and examine the five options a beneficiary has when accepting a life insurance settlement.

Lump Sum Settlement

This is the most common and straightforward of the five options. That is exactly what the name suggests it is, one lump sum payment is made to the beneficiary and that is it. For a relatively small settlement this is fine but if it is a large settlement then perhaps it would be better if it was paid out in installments, or as they say in the insurance business, income options.

Interest Option

Many times paying a beneficiary of a large sum of money is not in their best interest because they are not used to handling that much money. We have all heard of lottery winners squandering away their fortunes because they really did not understand how to manage money. Well, this happens more times than you can imagine with large insurance payouts as well. With an interest income option the beneficiary leaves the principal intact with the insurance company and just draws upon the interest that is earned.

Fixed Option

The fixed amount income option spells out exactly how much money is to be paid out each and every month to the beneficiary until the money has been exhausted. This can be stipulated by the insured or chosen as an option by the beneficiary. For example, $2000 per month will be paid out to the named beneficiary until the principal and interest of the life insurance policy has been completely exhausted at which time the payments will end.

Fixed Period Option

This option simply states that a fixed amount of money will be paid out to said beneficiary for a fixed amount of time. For example, a grandfather stipulates that $1000 per month is paid to his granddaughter over the course of the next 10 years.

Life Income Option

This is best for large insurance payouts. It basically pays income for the life of the beneficiary but stops the payouts when the beneficiary dies. This choice however, can become rather tricky. If the beneficiary happens to die prematurely then the heir of the beneficiary will receive the life insurance settlement.

As you can see there are a great many choices to consider when taking one’s life insurance settlement. The amount of money that is involved and the specific financial needs of the beneficiary are the prime factors that must be taken into account when deciding which option is the most appropriate. If it is a large sum of money then it would be wise to consult with a reputable financial advisor or insurance expert before choosing a settlement option.