Do you have a life insurance policy, or do you have the intention of buying one? If yes, understanding the average life insurance payout is essential. Whether you are a first-time life insurance buyer or you already have a policy, having substantial knowledge of your insurance payout is crucial. Life insurance is a type of insurance policy that offers financial protection to beneficiaries when the owner of a life insurance policy dies.
In recent times, quite a several people have been curious about life insurance payout amounts. And how they can change depending on factors like the insurance company, type of policy, and coverage limit. If you happen to be among those who seek the answer to what a typical average life insurance payout is, worry less. This article will provide valid insights into everything you need to know. Also, highlighting factors that affect insurance payouts and other tips.
What Is The Average Life Insurance Payout?
According to Aflac, the average life insurance payout for those who reside in the US is about $168,000. However, it is important to note that this payout differs significantly across different insurance companies, as several factors determine the amount of your life insurance payout.
When you buy a life insurance policy, the beneficiaries named on the policy get the death benefit, sometimes referred to as the policy payout, in the event of your death. Now, the type of life insurance policy you have is cash value withdrawals. The use of riders also plays a major role in determining how much the beneficiaries are paid by your insurer.
Your insurance company determines how the death benefit will be paid out to the beneficiaries. It could be in the form of a lump sum, an installment payment, a retained asset account, a lifetime annuity, or an interest-only payout.
How Life Insurance Payout Works
Life insurance payouts are typically designed to serve as a form of financial safety for beneficiaries after the policyholder is no more. Peradventure, you happen to be a beneficiary on a life insurance policy. Here’s a sneak peek of what the payout looks like:
Lump Sum Payout
This is one of the simplest ways through which the death benefit on a policy is paid out. The death benefit on a life insurance policy can be paid out in a lump sum to the beneficiaries depending on the insurer. This means that the insurance provider can decide to give out the entire death benefit at a go to the named beneficiaries. The funds can then be used to cater to expenses as deemed fit by the beneficiaries.
Installment Payment
As the name implies, the death benefits on a life insurance policy can be paid out in installments. The insurance provider will pay a specific amount of money to the beneficiaries on a policy according to a fixed schedule. It could be on a monthly to yearly basis. Whichever way, the beneficiaries will receive the insurance payout.
Annuity Payout
The beneficiary of a lifetime annuity is assured payments for the remainder of their life. The beneficiary’s age and the death benefit decide the amount. Usually, the remaining cash goes back to the insurer if the recipient passes away before the death benefit is depleted.
Retained Asset Account
Certain insurance companies allow you to keep the money in a retained asset account and take it out whenever you need it. The account functions similarly to a checking account in that interest is paid on withdrawals, and you can see your balance at any time. The initial insurance payout is still tax-free, but any interest gained can be taxable.
How Much Does Life Insurance Pay Out?
The specific amount of a life insurance payout is based on the death benefit as calculated by the insurance company. The death benefit can either be lower or higher depending on several factors.
For instance, if during the life of the policyholder he used a life insurance rider. The death benefit can potentially be lower than expected. Also, if you took out a loan against the cash value of your policy while you’re alive, the payout that goes to your beneficiaries will be lower.
How Long Does It Take For Beneficiary to Receive Life Insurance Payout?
The waiting period for a life insurance payout depends on the insurer. Usually, it takes between a month or two before the insurance company issues a payout when the beneficiaries on the policy have made a claim.
The payout can be delayed due to several factors, such as the cause of death, incorrect paperwork, or policy lapse. This means that, even if you file a claim, and the insurance company needs time to look into the cause of death. Or realizes the paperwork is incorrect, the payout could take longer than 2 months.
FAQs
Is it better to take a lump sum or an installment payment?
Well, the answer to whether to opt for a lump sum or installment payment depends on your unique situation. Let’s say you have an outstanding debt to settle; receiving a lump sum payment is an ideal option. You can also spread out the payment if you have a future goal of supporting your family over time.
What factors can affect the payout amount?
A few examples of factors that affect life insurance payout amount include the policy type (term, whole, or universal), and the chosen coverage amount. Also, the age and health of the insured at the time of application, and the consistency of premium payments.
Do all policies pay out the same amount?
Definitely not! The payout also differs significantly because life insurance policies are not the same. The payout typically depends on the specific term of the policy, and the coverage amount. Also, whether additional riders are included in the policy.