A guide to life insurance payout options
Lump sum? Annuity? Here’s how to choose the best life insurance payout option for you and your family
If you are a beneficiary on a loved one’s life insurance policy, you may find yourself in the position of having to decide between payout options. Do you want to receive a lump sum life insurance payout, or would you prefer to receive your life insurance benefit in installments? Should you consider an annuity, or will the fixed monthly payment get in the way of your long-term financial goals?
Asking yourself how you want to receive your life insurance benefits can feel like one more complicated choice you have to make during an already stressful time. You’re already busy filing a claim, procuring a death certificate (or a certified copy), but don’t worry. We’ve put together a guide to help you understand the different payout options, and how a life insurance payout works.
And if you need to decide which payout option is best for you, we’ve got the information you need to help guide your decision.
In this article:
What life insurance payout options are there?
There are two types of life insurance payout options. You can either receive your life insurance benefit money as a lump sum payment, or take your payout in a series of installments. In some cases, these installment payments are provided in the form of an annuity, which invests your life insurance payout in an interest-bearing account and distributes a fixed monthly payment. Annuities can extend the value of your death benefit, but many people prefer the freedom and flexibility that comes with a lump sum life insurance payout.
What life insurance payout options does Haven Life offer?
Haven Life’s affordable term life insurance policies offer tax-free, lump sum payouts. The average life insurance payout is around $618,000, according to Matt Myers, head of marketing at Haven Life.
How long does it take to receive a life insurance payout? With Haven Life, beneficiaries generally receive their payout within 24 hours of submitting a qualifying life insurance claim form. Lump sum life insurance payouts could be delayed if a beneficiary’s contact information is not up-to-date, which is why it’s a good idea for an insured person to keep a life insurance policy updated. If a life insurance beneficiary comes of age or moves across the country, for example, let your life insurance provider know.
What is the most popular life insurance payout option?
Many people choose the lump sum life insurance payout, although that doesn’t necessarily mean that the lump sum payout is the best choice for you and your family. Before deciding between life insurance payout options, ask yourself how you plan to use your payout—and whether your financial goals would be better served with a lump sum or an installment plan.
What should you consider before selecting a life insurance payout option?
If you’re trying to decide between life insurance payout options, take some time to think about your short-term and long-term financial needs. If you have a lot of credit card debt, for example, a lump sum life insurance payout could help you become debt-free.
If you’re hoping to use your life insurance payout to cover your mortgage payment, pay for your child’s daycare or help with the costs of tuition, an annuity or an installment plan could put money in your account when you need it. Installment plans and annuities can also prevent you from spending more of your payout than you were anticipating—and coming up short when it’s time to pay the bills.
Take a look at our master list of financial goals, which includes everything from retirement planning to vacation planning. Then ask yourself how your life insurance payout options could help you achieve these goals. From there, you might have a good idea of which life insurance payout option is best for you.
About Nicole Dieker
Nicole Dieker has been a full-time freelance writer since 2012, with a focus on personal finance and habit formation. In addition to Haven Life, her work regularly appears at Lifehacker, Bankrate, CreditCards.com, and Vox. Dieker spent five years as a writer and editor for The Billfold, a personal finance blog where people had honest conversations about money, and is the author of Frugal and the Beast: And Other Financial Fairy Tales.Read more by Nicole Dieker
Our editorial policy
Haven Life is a customer-centric life insurance agency that’s backed and wholly owned by Massachusetts Mutual Life Insurance Company (MassMutual). We believe navigating decisions about life insurance, your personal finances and overall wellness can be refreshingly simple.
Our editorial policy
Haven Life is a customer centric life insurance agency that’s backed and wholly owned by Massachusetts Mutual Life Insurance Company (MassMutual). We believe navigating decisions about life insurance, your personal finances and overall wellness can be refreshingly simple.
Our content is created for educational purposes only. Haven Life does not endorse the companies, products, services or strategies discussed here, but we hope they can make your life a little less hard if they are a fit for your situation.
Haven Life is not authorized to give tax, legal or investment advice. This material is not intended to provide, and should not be relied on for tax, legal, or investment advice. Individuals are encouraged to seed advice from their own tax or legal counsel.
Haven Term is a Term Life Insurance Policy (DTC and ICC17DTC in certain states, including NC) issued by Massachusetts Mutual Life Insurance Company (MassMutual), Springfield, MA 01111-0001 and offered exclusively through Haven Life Insurance Agency, LLC. In NY, Haven Term is DTC-NY 1017. In CA, Haven Term is DTC-CA 042017. Haven Term Simplified is a Simplified Issue Term Life Insurance Policy (ICC19PCM-SI 0819 in certain states, including NC) issued by the C.M. Life Insurance Company, Enfield, CT 06082. Policy and rider form numbers and features may vary by state and may not be available in all states. Our Agency license number in California is OK71922 and in Arkansas 100139527.
MassMutual is rated by A.M. Best Company as A++ (Superior; Top category of 15). The rating is as of Aril 1, 2020 and is subject to change. MassMutual has received different ratings from other rating agencies.
Haven Life Plus (Plus) is the marketing name for the Plus rider, which is included as part of the Haven Term policy and offers access to additional services and benefits at no cost or at a discount. The rider is not available in every state and is subject to change at any time. Neither Haven Life nor MassMutual are responsible for the provision of the benefits and services made accessible under the Plus Rider, which are provided by third party vendors (partners). For more information about Haven Life Plus, please visit: https://havenlife.com/plus
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