Life Insurance Settlement

The life insurance settlement is offered to the beneficiary nominated by the insured person after his/her death. The life insurance settlement is given to the beneficiary and in most cases it is tax free.

“Preferred beneficiary” entitles the spouse, children or grandchildren of the insured person to receive the life insurance settlement and this protects the amount from any other creditors who oblige to own the sum. “Primary beneficiary” refers to the first person who is entitled to receive the settlement amount; in the absence of the primary beneficiary, other nominee can get the settlement. However, there can be more than one primary beneficiaries involved in receiving any life insurance settlement.

In cases when the primary beneficiary dies before the life insurance settlement is processed and the person liable to claim the life insurance settlement in such cases is called the “contingent beneficiary.” Contingent beneficiaries are creditors however, the living children are given preference and in case of minor children, there should be a named guardian to receive the life insurance settlement amount.

So when above stated spouse, children, or creditors do not claim; benefits if willed go to charity. It is very important to make a clear mention, or even an early will, the sooner you take a policy. The will should clearly state the priority ranking about who should receive the life insurance settlement with conditions clearly mentioned. Without a good will you cannot ensure that your plans and money reach the recipient you really intended.

To ensure that your family receives the full benefits of the life insurance settlement it would be wise if you discuss with your family about your life insurance plans and your motivation behind the investment. You can discuss with them on how the money can be better used in your absence.

You can make a list of the issues you planned to sort out with your life insurance settlement amount. A well-advanced and sketched out plan on how the money should be distributed to children’s education and how much should go to mortgages etcetera can help your family decide and execute your financial investment for betterment.

As in your absence they may not make wise moves in emotional turmoil. A written plan and prior discussion always helps. It always avoids unnecessary delays that your family may face to get the life insurance settlement. Above all ensure renewals and correct premium payments, failing which all your plans would go a waste with minimal returns for your family.