Choose who gets what

September 5, 2013 | Last updated on September 5, 2013
2 min read

Not every insurance advisor pays attention to the settlement options in your policies. But they should. You can actually choose if beneficiaries are paid a settlement with an annuity or in a lump sum.

An annuity settlement means the insurer pays death benefits to a beneficiary in scheduled payments. You can select specific annuity terms, the payment period, the amount of such payments, and the guarantee periods.

Many people feel they can better invest the proceeds of a death benefit claim themselves, rather than leaving it on deposit with the insurance companies, so they don’t choose this option.

There are two reasons why you should.

Peace of Mind

An annuity settlement is a simple and inexpensive method of providing scheduled payments while saving probate and estate fees. There’s also increased privacy and potential creditor protection. It’s an especially good option when your beneficiaries are minor children with no investment savvy, or have special needs.

Higher Interest Rates

Many older policies let you choose between leaving the money on deposit with the insurance company or buying a fixed guaranteed annuity with the proceeds. The rates used in settlement-option scenarios are fixed within the contract.

Here’s the kicker: those rates were fixed when interest rates were close to double digits. Back then, the insurance companies had no qualms about guaranteeing rates at a then-conservative 3% to 5%. With interest rates in April 2015 holding steady at 0.75%, those guarantees are unmatched.

So, check the settlement options and see if it makes more sense for your family to leave all or a portion of the funds on deposit. While you’re at it, consider purchasing an annuity for your family using the built-in settlement option rates.

Finally, before you surrender a policy, check to see if the definition of proceeds includes a cash surrender value.

It might be a good idea to surrender and leave some of the funds on deposit.