zTermLifeInsurance Blog
Saturday, September 04, 2010
- 07
Jun
2010 -
Term Life Insurance from the Other Side-I: Lump Sum Payout
Filed Under: Blogging
While purchasing term life insurance is one side of the coin, the other side of the coin is receiving the benefits. This is often an overlooked aspect of term life insurance, as insurers and planholders both tend to ignore this aspect of it. However, it can be very important to the beneficiary.
If you are a beneficiary of a term insurance plan, the insurance company will likely ask you the method of death benefit payout you would like. Some companies allow the plan holder to set this as well. There are two basic types of payouts: Lump sum and annuity payments.
A lump sum payment, as the name suggests, pays out the death benefit in one go. Most people prefer this mode of payment, due to various reasons. Typically, people with mortgages to pay off or those who are hesitant to deal with insurance companies opt for this method of payment. It is hassle-free and simple, but comes with its own set of problems.
For one, the lump sum payment presupposes that the money will be invested wisely elsewhere. That may not be the case if the beneficiaries are minors, or otherwise unable to make financial decisions. Also, although the death benefit is tax-free, the interest on the lump sum is taxable.
