For a widow collecting Life Insurance, what is the benefits of collecting installments compared to a lump sum.

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Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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UPDATED: Feb 5, 2012

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Insurance Question from Manhattan, NY

Asked on 02/05/2012

For a widow collecting Life Insurance, what is the benefits of collecting installments compared to a lump sum. NULL

Answer given on February 06, 2012

There are several options to collect a death benefit from life insurance.  Among them are lump sum distributions or retained asset account. You didn’t mention how the age of the widow or what mode of investment the life insurance company is suggestion you collect installments  from for the death benefit payout.  Read our article entitled What are Life Insurance Retained Assest Accounts. Often, insurance companies will give you the option of collecting a death benefit in a lump sum or in what is known as a retained assest account.  These accounts are typically in the form of a checking account and normally pay a higher interest rate than your typical interest checking. With these accounts, you write checks on your money just like any other checking account.  There are also other accounts that life insurance companies can offer such as annuities and certificate of deposits.  Of course an annuity can be structured to give you a monthly payment.  Benefits of these retained assets accounts can range from allowing the beneficiary (or widow) time to think about what they want to do with the money before taking possession of the entire lump sum to allowing the beneficiary to have control of the money through a separate checking account and at the same time allowing immediate access through writing a check.  It can also allow additional earning in the form of interest on the proceeds.  Choosing whether a lump sum or an annuity or a checking account is the best option is really a personal choice.  If the widow is 25 year of age, she may choose a distribution that is different than a widow that is 75! Consider talking to a CPA or a financial advisor to get more specific help as well as tax advice on any option.  This will also give you better guidance for your specific situation with consideration of the widow’s age and future goals.  

 

   


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