Finance Quick Answers
How should the life insurance death benefit be paid out?
When an insured person dies, the named beneficiary is entitled to receive a cash death benefit. Several payout options are available:
- Lump sum (the entire death benefit is paid to the beneficiary in one lump sum - the option chosen by beneficiaries more than 90 percent of the time)
- Interest payment (the policy's face value is left with the insurance company to invest - interest is paid to the beneficiary over an agreed-upon number of years and the face value is paid at the end)
- Installment (annuity) (the beneficiary gets the money over a period of time, generally in monthly payments - you can either choose an amount to be received each month and the company tells you how long they will last or you can choose how long you would like the annuity to last and the company tells you how much you will receive each month)
- Life annuity (as a beneficiary, you are guaranteed a certain monthly payment as long as you live - or you could choose a little less each month and get payments for your beneficiary for a specified period of time, regardless of when you actually die)
Brenda Procter, M.S., Consumer and Family Economics, College of Human Environmental Sciences, University of Missouri-Columbia
If you'd like to learn more about this and other personal finance topics, the University of Missouri offers 'Personal & Family Finance,' a correspondence course, through the Center for Distance and Independent Study (800-609-3727). Information about this course is available at http://cdis.missouri.edu/CourseInfo/DetailCourseInfo.asp?1985.
Last update: Monday, October 19, 2009