There are several life insurance payout considerations.  It’s important to understand those options so that you choose the right one for your situation.

Do you want a lump sum payout?

• By accepting the entire death benefit at once, it’s generally not counted as taxable income (only in rare cases would an estate tax come into play).
• Taking a lump sum can offer the most flexibility. You have complete control over the money and can use it how you want.
• It’s important to note that FDIC deposit insurance will only cover $250,000 per depositor so you may need to put your payout in multiple accounts.

Do you have an option for a retained asset account?

• This is a simple solution with easy access to the money. By leaving the payout with the insurance company, you might earn interest, but only on the death benefit amount.
• The insurance company will protect the money versus worrying about FDIC insurance limits.
• The interest you earn might be at a low rate, and it’s subject to taxation.

Can you convert your payout to an annuity?

• You could get more than the policy’s death benefit amount if you live longer than the insurance company expected when calculating your guaranteed payments.
• Because they are distributed over an extended period of time, the younger you are, the smaller payouts are.
• It’s possible that if you die before collecting the full life insurance benefit, the insurance company will keep what’s left.