How Life Insurance Payouts Work: Lump Sum vs. Installment Payments

team waffle icon
Team Waffle
April 13, 2023
Table of Contents

Term Life Insurance For Newbies Course Part 6

Hey everyone, welcome back to our Term Life for Newbies series!

Today, we're talking about the payouts you can receive from a term life insurance policy. Let's get into it!

Lump Sum & Installment Payments Payout Definitions

First things first, let's talk about the two types of payouts: lump sum and installment payments.

A lump sum payout is pretty straightforward - it's a one-time payment of the death benefit to your beneficiary.

On the other hand, installment payments are paid out in regular intervals over a period of time, like monthly or annually.


So, which one is better? Well, it really depends on your situation. Here are a few factors to consider!

Access For Beneficiaries

A lump sum payout can be great if your beneficiary needs access to a large amount of money quickly, like to pay off a mortgage or other debts. It also gives your beneficiaries immediate access to the funds they need to pay for your final expenses, such as funeral costs. 

But if your beneficiary doesn't need all the money at once, installment payments can provide a steady source of income over time. This can be helpful if your beneficiaries are not great with managing money or if your beneficiaries are minors, as it allows for a more controlled and steady payout over time.

Life Insurance Payout Taxes

Another thing to consider is taxes. With a lump sum payout, your beneficiary will receive the entire amount tax-free. But with installment payments, only the interest earned on the death benefit is tax-free - the rest is subject to taxes.

Life Insurance Fees

It's also important to note that some insurance companies may charge a fee for installment payments. So, be sure to ask about any fees or restrictions before choosing this option.

Combination Option

And finally, with certain policies you can also choose a combination of both options - for example, a portion of the death benefit as a lump sum payout and the rest as installment payments.

Congratulations, you've just become  a mini-expert on term life insurance payouts! Whether you choose a lump sum or installment payments, understanding how your loved ones will receive the benefits can give you peace of mind. Thanks for reading, and don't forget to subscribe to our newsletter or follow our socials!

Term Life Insurance for Newbies Course