Glossary

Settlement options

The ways a beneficiary or policy owner can receive life insurance proceeds: lump sum, installments, interest only or lifetime income.

Also called: payout options, settlement modes, settlement option

Settlement options are the payout choices written into a life insurance contract. Most beneficiaries take a lump-sum payment, but policies usually offer alternatives that leave some or all of the money with the insurer.

Typical options include interest only, where the insurer holds the proceeds and pays interest, with the principal available later; fixed period, which pays equal installments for a chosen number of years; fixed amount, which pays a set sum until the money runs out; and life income, which turns the proceeds into an annuity for the beneficiary's lifetime, often with a period certain. Some insurers also use retained asset accounts, interest-bearing accounts with a checkbook. Hypothetically, a $200,000 benefit paid over 10 years at a 3 percent guaranteed rate would come to roughly $1,930 a month.

The death benefit itself is generally income-tax-free, but interest earned while the insurer holds the money is taxable. An owner can sometimes choose the option in advance, locking it in for a beneficiary who might spend a lump sum quickly. Compare the insurer's guaranteed rates with what you could earn elsewhere. See life insurance payout options: lump sum, installments and annuities and retained asset accounts: the checkbook you didn't ask for.

Last reviewed October 4, 2026

In the index now

Related terms

Lump-sum payment Receiving an entire life insurance death benefit at once in a single payment, the most common way beneficiaries choose to be paid. Interest-only settlement option A payout choice in which the insurer holds the death benefit and pays the beneficiary only the interest it earns, leaving the principal for later. Life income settlement option A payout choice that turns a death benefit into guaranteed payments for the rest of the beneficiary's life, sometimes with a minimum number of years. Period certain An annuity payout feature that guarantees payments for a set number of years, paying a beneficiary if the annuitant dies before that time is up. Spendthrift clause A policy or trust provision that keeps a beneficiary's future payments from being assigned, sold or seized by their creditors before they're paid. Death benefit The money a life insurance policy pays to the beneficiaries when the insured dies, usually the face amount adjusted for loans, riders and dividends.

Related guides

How to file a life insurance claim A step-by-step guide for beneficiaries: find every policy, get death certificates, contact the insurer, choose how to be paid and follow up. How to read a life insurance policy, section by section A section-by-section walk through a life insurance contract, from the data page and key clauses to riders and the attached application, and what to check. Income replacement: the 10x rule and better ways The 10-times-salary rule is easy but blunt. How to size income replacement properly: net pay, the right number of years and a realistic return. Life insurance payout options: lump sum, installments and annuities How beneficiaries can take a death benefit: lump sum, retained asset account, interest only, installments or lifetime income, with the tax on each. Retained asset accounts: the checkbook you didn't ask for Some insurers pay a death benefit as an account with a draft book instead of a check. How these accounts work, the rules, the risks and how to move the money. Servicemembers' Group Life Insurance (SGLI) SGLI gives eligible service members up to $500,000 of term life for $26 a month. Who qualifies, family coverage, TSGLI and what happens at separation.

Related tools

Life insurance claim checklist A four-part checklist for a beneficiary collecting a death benefit: gather documents, contact the insurer, submit the claim and follow up.