Whether you get traditional life insurance or life insurance without medical exams, you will have much to decide when it comes to how to protect your loved ones. Knowing that you want a policy is just the first step toward trying on different coverage amounts for your situation and, ultimately, deciding on what exactly will happen when you pass away.
In addition to figuring out how much to give them, you’ll also need to explore when it makes sense to pay out benefits and what structure those payments should take. Once the insured passes away, life insurance benefit payment schedules begin, and many choose to make this decision as simply as possible by using lump-sum payments.
While installments offer an attractive way for some to stagger payments to their loved ones and seem to offer consistency to the plan, lump-sum payments directly to beneficiaries stay incredibly helpful for the unexpected death. Let’s dig into what lump sum payments are and how they work for those on whole or term life insurance plans, with and without medical exams.
What are Lump Sum Life Insurance Payments?
Lump-sum life insurance payouts are those direct and full payments that go to your beneficiaries. In other words, when you give a lump sum payment through your life insurance policy, you give the whole death benefit (or rightful portion of it) to your beneficiary at once and without reserve.
In the situation where you have a $300,000 life insurance policy, your policy would give a lump sum payment of $300,000 to the beneficiary you name, or $150,000 to the two you name, and so on. There are many varied reasons that people choose lump sum payments over staggered payouts (even when they grow interest in reserve), but there is also another sense of “lump sum” in the insurance world to understand.
What is Lump Sum Life Insurance?
There is a difference between lump sum life insurance payments and lump sum life insurance itself. Lump-sum life insurance payments, as you saw, deal with what happens after the death of the insured, and lump sum life insurance refers to how the policy premiums are paid. For example, you can choose—in some cases and with some insurers—to pay for a life insurance policy all at once.
With this lump-sum premium payment, you lock in the benefits of the policy completely with one payment, keeping it in force for the rest of your life. There are, like lump sum payments, some advantages to a lump-sum premium. For one, you won’t have to continuously budget for your life insurance, and for another, you’ll always know that you’re fully covered by an active policy—no matter what.
Should Life Insurance Pay in a Lump Sum?
Life insurance, for the most part, has taken a long time to move away from lump sum, immediate, and complete payments upon the activation of a policy. As it has changed and evolved, there are now many fascinating options for policyholders to take up when it comes to the disbursement of benefits, such as annuity plans that pay themselves out in installments.
Lump-sum payments, despite market innovations, remain common, and they’re available on whole and term plans just as often. These payments are for the total amount that the policy guarantees, but a claim must still initially be made by the beneficiaries to collect from the coverage amount. To collect a lump sum payment, a life insurance policy beneficiary needs to contact the insurance company with a death certificate to do that. Then, they receive the lump sum payment.
Get Lump Sum Payments for Beneficiaries through Sproutt
Some policyholders may not immediately think that lump sum payments are best for their beneficiaries, but they bring an impressive number of possibilities for beneficiaries to take charge of their lives after the loss.
Since they can use the proceeds of the policy in any way they like, beneficiaries can do much more with lump-sum payments more quickly than with staggered payments. Beneficiaries choose all kinds of goals to meet and needs to satisfy because of a lump sum life insurance payment:
- They pay off their 30-year mortgage.
- They cancel debts like car loans and credit cards.
- They save money for their children’s education.
- They plan vacations and events special to the deceased.
- They create emergency funds for themselves.
- They satisfy estate taxes.
- They donate to charity.
- They get home repairs.
Lump-sum payments are useful, simple, and for the most part non-taxable. Sproutt can help you choose a trusted company to give you life insurance coverage with lump-sum payouts.