Weighing Life Insurance Payout Options: Lump Sum vs. Income Replacement
Jun 14, 2021
2 min read
Now, more than ever, more people have said they are likely to purchase life insurance.
- According to the , 鈥�36% of consumers say they plan to purchase life insurance within the next 12 months.鈥�
- However, only 52% own some sort of life insurance coverage.
- And 59% of those uninsured note they need life insurance.
One of the biggest questions people face when deciding whether to purchase life insurance is how much coverage they need. The Barometer Study found 53% weren鈥檛 sure what product they need or how much coverage to buy.
To start, it鈥檚 important to understand your goals and what options best fit your needs. Working with an agent helps ensure you choose a policy that offers the right fit.
Various coverage and benefit options allow you to find a policy that will best protect you and your family. However, the multiple policy designs, add-ons and terminology can leave you feeling overwhelmed.
Did you know when purchasing life insurance you have options for how your policy pays out the death benefit? It's common to think the only option is a lump-sum payout; however, that may not fit your needs.
Life Insurance Payout Benefits: Lump Sum vs. Income Replacement
Lump Sum
A lump sum life insurance death benefit is a one time payment to the policy鈥檚 beneficiaries. When the policy is purchased, the owner decides how much insurance coverage they want to buy. Like most options, there are pros and cons to consider:
Pros:
- Depending on the amount, a lump sum can be used to immediately pay off interest bearing debts 鈥� mortgage, car loan, college tuition and more.
- It can be invested.
- It offers flexibility.
Cons:
- A large lump-sum amount can feel overwhelming especially at a time of grieving.
- The money may not last as long as anticipated.
- Death benefits may be spent without a long-term strategy in mind.
Income Replacement
While a lump-sum payout design is the most common life insurance payout, it鈥檚 not the only option and it鈥檚 not always the best fit for everyone鈥檚 goals and needs. For many people, they want to ensure their loved ones will be able to continue living their current lifestyle without disruptions to their finances. According to the 2021 Insurance Barometer Study, 42% of Americans would face financial hardship within six months if the household鈥檚 wage earner were to pass away suddenly.
If you want to help ensure your family will continue to receive consistent, monthly income after your passing, a policy that provides income replacement with monthly payments may be a good fit for you. Just like the lump-sum payout design, there are pros and cons to consider before purchasing a policy:
Pros:
- The steady, monthly tax-free payments are paid to your beneficiaries for a set number of years.
- The benefit is guaranteed to last for a predetermined length.
- It can help avoid disruptions to finances and allows your loved ones to maintain their current lifestyle and cover regular expenses like bills, childcare costs and more.
Cons:
- Doesn鈥檛 offer as much flexibility to pay off large debts.
- It limits the ability to earn interest from a large lump-sum.
Financial Stability for Them, Peace of Mind for You
No matter which payment design you choose, a life insurance policy helps ensure financial stability and support to those most important in your world. Finding the right policy can feel like a big decision. Your local Farm Bureau agent will help you identify your goals and find a solution that best fits your needs. Contact an agent today to protect your family鈥檚 financial future and ask about Income Guard Term Life.