LIFE INSURANCE SURVIVOR OPTIONS

When someone dies and you are the beneficiary, you will be offered the following settlements. Which would you take?

1. Income for a fixed period from 5 to 25 years. If you should die before the payments are complete, your beneficiary will get the remainder in the same frequency

2. Life Income with a Guaranteed Payment. You collect a payment for the rest of your life at least equal to a guaranteed amount. If you should die before the guaranteed amount is paid, your beneficiary will receive the difference at your death.

3. Joint and Survivor Life Income. Payments are made for your life and the life of your selected survivor. Your survivor does not have to get the same amount- it may be pre selected at 33%, 66%, 100, etc.

4. Lifetime Income. This provides income for your life ONLY. When you die, payments cease altogether.

5. Installment Refund with Life Income. You will receive income for life. Should you die before you have received total payments equal to your initial contribution, your beneficiary will receive the difference.

6. Income of a specific amount. You can select an amount to be paid until the principal is exhausted.

So which one would you take? Unfortunately, for almost all individuals, most all the above selections can be terrible. Why? Simply because the insurance company is usually not going to pay much interest on the funds at all. (But unless you or your adviser can use a financial calculator, you'll probably never figure it out.) Secondly, you lose access to the funds. Should an emergency arise, you have no right to any of the principal at all. What should you do? Take the lump sum and wisely invest it. Yes, there is more risk, particularly if you use an adviser that doesn't know much. But properly handled, the return should unquestionably be higher than what the insurance company would offer and your access to the funds is unlimited.

I REPEAT- the access to funds is unlimited. I submit that almost all of us have "stuff"  that happens in their lives where we need access to lump sums of money. Children may face medical emergencies, the survivor loses a job, a car no longer works, college costs are greater than anticipated- whatever. If all the funds are tied up in an annuity where you CANNOT get at them for any reason, then that is BAD planning. The more access you have to your own money, the better. Admittedly a spendthrift could deplete the account quickly and leave even a worse situation, but I am referring to rational people who properly recognize their responsibilities.

As I frequently state and addressed several times on this WEB site. It is not what you WANT to do, nor what you would LIKE to do. It is what you NEED to do that is the determining factor.