What is “settlement option” in life insurance?

The term “settlement option” in life insurance refers to the method by which the death benefit is paid to beneficiaries when a policyholder passes away. This can take various forms, including a lump sum payment, where the full amount is given at once, or structured options such as annuity payments, where beneficiaries receive the benefit in installments over a specified period.

This concept is fundamental in understanding the flexibility that life insurance policies provide, allowing policyholders to select the option that best meets their beneficiaries’ needs. Settlement options can significantly impact how beneficiaries manage the funds they receive, influencing their financial situation after the loss of the insured. Understanding these options is essential for both policyholders and beneficiaries, ensuring they are prepared for the potential scenarios surrounding a life insurance payout.