Principles of Risk Management and Insurance, 13th Edition

Settlement Options

Settlement options refer to the various ways that the policy proceeds can be paid. The policyholder can elect the settlement option prior to the insured’s death, or the beneficiary may be granted that right. Most policies permit the cash-surrender value to be paid under the settlement options if the policy is surrendered. The most common settlement options are as follows:

• Cash

• Interest option

• Fixed-period option

• Fixed-amount option

• Life income options

Cash

When an insured dies, cash is needed immediately for funeral expenses and other expenses. To meet this need, the policy proceeds can be paid in a lump sum to a designated beneficiary or beneficiaries. Some insurers pay interest on the policy proceeds from the date of death ...