If a term life insurance policy benefit is triggered, the policy owner generally has control over how the benefit will be paid out.  This is also know as the life insurance settlement option.  Each carrier will have different options and flexibility on this matter but it's important to at least understand some common settlement options available in the life insurance market.

Keep in mind that this determination is based on your (the policy owner's) preference.  It really needs to work for your situation.  The most common settlement option is the lump sum.

The lump sum is the simplest and probably most common type of settlement.  Essentially, the beneficiary or beneficiaries are paid one payment following the death of the insured.  There can be some twists in terms of percentages and maybe time tables of payment but this is what traditionally comes to mind for most people for life insurance.

Fixed Amounts Installments.  With this option, the life insurance company will pay out designated equal payments to the beneficiary (ies) over a period of time.  Interest on the unpaid portion is usually assessed on top of the installments.  This might work if you worry about a beneficiary having the entire payment at one time or maybe with a younger dependent.  The beneficiary may have the option to withdraw all or part of the proceeds at any time.

Fixed Annual Installments.  With this option, life benefit will be paid in equal installment monthly up to a period of time that the policy owner dictates.  The term life beneficiary may still have the right to withdraw the proceeds at any time.

Life Income.  This is less common with term life insurance.  Essentially, the beneficiary will received a fixed, monthly amount for the remainder of his/her life.  There can be guaranteed periods for the payment in case the beneficiary dies before a certain time (say 15 years for example).  At this point, the benefits will be paid to the estate of the beneficiary.

None of the Above.  There can be scenarios where an insured and life insurance company agree to a mutually acceptable settlement option.  There are as many possibilities as there are family situations. 

So what is our take on the various settlement options?  The lump sum usually works the best unless you are concerned that a beneficiary cannot handle the temptation of such a large amount of money all at one time.  We have seen many situations and we're sure you're familiar with a few where a person inherited a considerable amount of money only to be broke a few years later.  It's so common that you need to consider this potential outcome when choosing an option.  The installments or life income helps in this kind of situation since there is not a temptation with a large payment. 

Another concern with settlement that's equally important even with lump sum is the further detail that can be added.  For example, you may want to split the settlement among different people based on percentage.  Again, each insured person knows their situation and interests the best.  We're here to help you go through the options available to you for life insurance settlement options.