Few people pay attention to the settlement options of their insurance policies, but they should. Policyholders can usually choose whether the beneficiary gets a lump sum, or an annuity. The annuity option pays the beneficiary an income stream for a specified time period. You can actually choose the amount of income you want the beneficiary to receive, and the guaranteed payment period.
Most people feel they could better invest the proceeds from an insurance policy rather than leaving the money on deposit at the insurance company. Here are a couple reasons why you should at least consider the annuity option:
PEACE OF MIND The annuity option is a simple and inexpensive way of providing an income stream while saving probate and estate fees. Since the arrangement is done outside the will; your intentions remain private. Furthermore, the annuity is an insured product and therefore enjoys protection from creditors. It is a good option if your children are mentally challenged or still minors; and you don’t have an investment savvy trustee.
HIGHER INTEREST RATES Many of the older policies let the owners choose between buying a fixed guaranteed annuity with the proceeds or leaving the money on deposit with the insurance company. The interest rates used for these options are fixed within the contract at the time the policy was purchased. As you may know; years ago interest rates were close double digits, so the insurance companies had no problem guaranteeing rates between 3% - 5%. With today’s interest rates around 1% those guarantees are unmatchable.
So pull out those old insurance policies and read the fine print, especially if you feel your beneficiary may be better off with an income stream rather than a lump sum payment.
If you need help, don’t hesitate to give me a call.
Have a great weekend,
Source: Advisors’Edge February 2012 edition
Please note: Insurance is not a business of Security Financial Services but is placed through an AGA, Capital Insurance Services via Hub Financial.
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