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Life insurance payout options

Feb 3, 2021 4 Minute Read

Life insurance can help you and your family rest easier that your future is secure. If you die unexpectedly, life insurance provides a payout called a death benefit to help support your family and give them peace of mind, both now and in the years to come.

So what exactly is a payout in life insurance? It’s important to understand what happens with your policy after your death, so you can make sure the money goes to the right people when they need it most. Here’s how life insurance payouts work.

Choosing a beneficiary

Your beneficiary is the person or entity that will receive your life insurance payout if you die while the policy is active. Your beneficiary can be a partner, child, parent, business partner, or even an organization, like a charity.

You can split the payout among multiple people, and you can also choose primary and secondary beneficiaries. Secondary beneficiaries would receive the life insurance payout if the primary beneficiary is no longer living or declines to accept the payout. Make sure to choose your beneficiaries wisely, and keep in mind that underage children can’t directly receive funds – although the money can go into a trust for when they reach maturity.

Understanding life insurance payout options

When you buy a life insurance policy, you choose a coverage amount, and when you die, this is the amount that your plan pays out as a death benefit. But how much can life insurance pay out? The payout can range from a few thousand dollars for a small final expense plan to $1 million or more for term life insurance. Your term life insurance beneficiaries have a few options for receiving the payout:

  • Lump sum. The typical life insurance payout comes as a lump sum of cash. Your family might want to split this payout among multiple financial accounts, since the FDIC insurance limit is $250,000.
  • Installments or annuity. Some insurance companies will pay the death benefit in installments or as an annuity, which offers a guaranteed income for a set number of years. Keep in mind that the money earns interest as the life insurance company holds it. If your beneficiaries go this route, they may need to pay taxes on the interest.
  • Retained asset accounts. Another option that varies by carrier is a retained asset account. With this option, the insurance company holds the money, and the beneficiary can withdraw the money as needed.

When you buy a policy, talk with your insurance company about the options and discuss them with your beneficiaries. They will be able to choose which payout option they want when they file a claim. Beneficiaries can use the money to pay for anything they want, from paying off debts to saving for the future to give them peace of mind.

Filing a claim

Make sure to tell your family about the life insurance policy as soon as you buy it since you don’t want money to go unclaimed. After your death, your beneficiaries should contact your life insurance company as soon as possible to start the process. To file a claim, they’ll need the name of the life insurance company and a copy of the death certificate.

There is no set amount of time for receiving the payout, but it generally comes quickly. Life insurance companies are motivated to pay claims quickly since they will need to pay interest on the money if they hold it too long.

Still have questions?

We’re here to help. eFinancial works with top-rated insurance companies to help you find the right coverage for you and your family. Call us or start your quote online today.


At eFinancial, our goal is to make life insurance simple, affordable, and understandable for everyday families. This content is intended for educational purposes only. Each post is carefully fact-checked, reviewed and updated regularly to ensure the information is as relevant as possible.