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In the last post we covered the fact that the “default” payment option is a lump sum payment to your beneficiary. Either the owner of the policy or the beneficiary can change that option. Attached is the portion of the policy that deals with payment options.

Term life insurance policy payment options

The owner might choose another option if the thought of the beneficiary receiving a large lump sum of cash doesn’t see like a prudent idea. If one of the five alternative options is chosen, the company retains the lump sum and pays it out as per the owner’s wishes. A good example of where this might be prudent is if a husband dies and leaves an elderly wife behind. Choosing a lifetime income option might very well be better than a lump sum. It really depends on your take on the beneficiary’s ability to handle money.

The beneficiary can also choose to accept the money in one of the five options other than a lump sum. Again, the beneficiary may be more comfortable receiving monthly payments for life than one big chunk.

Option 5 comes into play in one other circumstance. If a death occurs during the contestability period it is not unusual for the claim to take longer than 30 days to settle. If that happens, the company pays interest on the death benefit, so that when the claim is settled it comes as a payment of the principal (death benefit) and interest. I will cover death during the contestable period in another post. It’s nothing to be worried about, but you should, as a beneficiary, be aware of it. Companies want to pay, but by law they have to do their due diligence.

The Annuity tables are pretty self explanatory. For instance, Option 1, the lifetime income option. If you have a $500,000 policy and when you die your widow is 75, she will receive $7.72 per thousand per month for life. $3860 a month guaranteed for as long as she lives.

Bottom line. The owner and the beneficiary of a  life insurance policy should discuss these options. The owner has the control of choosing the option prior to death and, if the owner leaves it as a lump sum, the beneficiary has the option after death.

The rest of the policy is the copy of the application. I’ve shared my policy and it’s “fine print”. I will leave the application up to your imagination. It’s a bit to personal to put out for personal consumption, but suffice it to say that as long as I’m on my medication everything seems to go just fine.