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A settlement option is a way to receive policy proceeds in a way that doesn't include getting on lump sum of a payment at once. The settlement option allows for the policy holder to choose while they are still living how they want the payment to be handled once they have passed. If this is not set up during the life of the policy holder, when the time came the beneficiary would make this selection. The different types of payouts are an interest option, where the interest earned on the proceeds is paid to the beneficiary. The Fixed Amount works like a temporary annuity where the insurance company pays the proceeds plus interest to the beneficiary until all of the money is completely paid out. There is also the Life Income Option, similar to the Fixed Amount but the payout is paid in installments to the beneficiary for the course of their life.
The non-forfeiture option is one that allows for the payment of the cash value of a policy when the policy is surrendered.
A Dividend option is one where the policy owner would get paid a dividend. This can only be done if the contract allows for it properly, and then the policy owner can be paid the dividend. The dividend can be paid out in various ways. One way is they can get cash payment. When the policy is paid up this is a popular choice. Another way to receive the dividend would by way of a premium reduction on the next payment due for the policy.
Further, one can accumulate interest on the dividend. The insurance company would specify a rate for the policy. It would be compounded on a yearly basis. With this option you are allowed to withdraw against the policy. When money is withdrawn taxes are going to need to be paid on the interest portion of this dividend option. This would need to take place during the same year that they credit the withdraw. Any dividend set to be paid when a policyholder dies would then be paid to the beneficiary as part of the death benefit. This would be paid with the accrued interest, of course.
There is another way the dividend can be paid. They can be paid with what is called a paid up addition. You can use the dividend to buy more insurance. This becomes a good option for the policy owner because with this feature you can get additional insurance coverage. You can most times do this and obtain coverage at the policy owner's attained age. Also, most times you do not have to provide proof of insurability. The attained age the insured will get this coverage with is described as the current age reached by adding the period between when the life insurance policy started and the current age reached by adding the period between when the life insurance policy started and the current time. So, a paid up addition will be of the same type of insurance as the original policy. You will not find this option available on Term policies. Finally, another way to receive a dividend is by using the dividend to purchase a one-year Term policy.
Whichever payout option you are interested in it is wise to find out more information by doing ample research on this subject. The different types of life insurance policy payouts options explained here are just a snapshot of the variations of these payouts. There are many different details regarding these options that can or may be explained in more detail. A life insurance agent can be a great resource in providing this an other important information regarding life insurance.
The standard grace period for payment with most life insurance policies is 30 days. but you want to double-check with your life insurance agent or carrier as to the exact details of your policy. This means that if you payment is due March 1st, you have up to 30 days following this date to have the payment received by the carrier. This grace period typically does not vary depending on the period of payment (monthly, quarterly, annually, etc) or by the type of payment method (credit card, billing, auto-deduction).
This grace period can really help with auto-deduction or credit card payments where the old information (credit card # or expiration date for example) is no longer up to date or valid. This can especially occur when you pay for longer periods of time such as annually or bi-annually. People tend to forget about their life insurance payment if it's processed once a year and they have the card stolen or misplaced in-between. In fact, this is a common cause of lapsing policies. We feel that the automatic renewal options involving credit cards and auto-deductions are the safest way to go. The carriers have found that a policy is less likely to lapse when set up with these payment methods. Bills get lost and it's easier to procrastinate when paying with a physical bill. Combining the basic automatic nature of paying via credit card or auto-deduction and the grace period safety net in case the payment information has changed in the interim provides a solid protection against lapsing life insurance.
What happens if you miss your grace period for an existing insurance policy? At that point, the policy lapses coverage which means you no longer have the life protection of the policy. Your part of the life insurance contract is that you will continue to pay the premium as required to keep the policy in effect. If you miss payment past any grace period allowed by the carrier, the contract essentially cancels going forward. There may be options to re-instate a life insurance policy if back premiums are paid but you do not want to rely on this. Many life insurance policies cancel or lapse within the first 18 months.
Lapsing a life insurance policy is generally bad news. First of all, unless you've recently come into millions of dollars, the basic need for life insurance protection probably hasn't changed much. If you missed the grace period, lapsed the policy, and decide to re-apply for new life insurance, the rates will likely be higher since you are now older. The biggest driver of life insurance rates is age so any increase in age means that you will generally pay more over the life of the policy. The grace period for life insurance payments is a protection against this risk but it's best to rely on it only in a true emergency in case automatic renewal payments have an issue. If a payment does not go through on an automatic renewal, the carrier will generally notify you of the issue or general a paper bill.