Claim Settlement Options

Most claims are paid in single lump sum. In case of a small sum assured, this lump sum payment may become necessary for immediate needs. (However, where the sum assured is large the amount if paid in instalments would be a valuable aid to the family maintenance). It is surprising that adequate attention is not paid to this aspect of the settlement options either by the claimant, or by the agent or the insurer.

The settlement options as available are not competitive in interest rates and therefore most claimants probably would not opt for it. Lump sum payments are most likely to be spent much faster leaving the family without the benefit of security. The family in the absence of the breadwinner may not have the foresight and the ability to look to the safety of the capital, rate of return, liquidity and ease of management of money. Many insurance companies world over are facilitating the management of the claim by offering a lot of options to the claimant.

Life insurance can be described as the creation of capital and annuities as a method of distribution of capital. Life insurance companies therefore, can convert this capital into annuity payments as per the needs of the claimant.

An agent would do well to advise the widow in this regard and help her to purchase a suitable annuity policy with this claim amount so that the family can look after itself smoothly for quite sometime. Annuities of various types are available, as has been discussed in the chapter on “Life Insurance Products”.

Lump sum payment, let it be remembered, does not offer protection against the creditors of the beneficiary, while the payment through annuity payment does. For beneficiaries, inexperienced in the art of money management receiving guaranteed payments in instalment may be more desirable.

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