Cash settlement is a settlement option frequently used in trading of futures and options contracts, where at the expiration date the underlying assets are not physically delivered while only the difference is being paid by either of the parties depending on the market rate at that point of time; it is the more convenient and preferred method of settlement as it doesn’t require to take a physical position in any trade.
Full Answer
What are the different types of settlement options for life insurance?
All of the following are life insurance settlement options, EXCEPT: Select one: a. Interest only b. Fixed-period installments c. Automatic premium loan d. Life income LH74005 Feedback Your answer is correct There are four settlement options: interest only, fixed-period installments (period certain), fixed-amount installments and life income.
What is a a settlement option?
A settlement option that would leave the proceeds of the insurance policy with the insurer and the insurer would pay interest to the beneficiary on an installment basis is called: Select one:
What are the four most common alternative settlement approaches?
The four most common alternative settlement approaches are: the interest option, under which the insurer holds the proceeds and pays interest to the beneficiary until such time as the beneficiary withdraws the principal; the fixed period option, under which the future value of the proceeds is calculated and paid in installments...
What is a fixed period life settlement option?
The fixed period life settlement option distributes the death benefit plus any earned interest over a specific period of time. That monthly check functions as tax-free income and can help your beneficiary cover living expenses.
What is the most common settlement option?
The four most common alternative settlement approaches are: the interest option, under which the insurer holds the proceeds and pays interest to the beneficiary until such time as the beneficiary withdraws the principal; the fixed period option, under which the future value of the proceeds is calculated and paid in ...
Which life insurance settlement option is the most common?
Lump-sum payment Lump-sum payment is the simplest and most common insurance type of life insurance settlement. Once the insurance company receives and validates the life insurance claim, your beneficiary will be paid the death benefit in a single, tax-free payment.
What is the purpose of settlement option?
The primary objective of settlement option is to generate regular streams of income for the insured. Description: Under settlement option, the insured receives a regular flow of income from the insurer post the maturity of the policy.
Who may choose the settlement option for a life insurance policy?
Life Insurance Settlement Options If there is no designated settlement option at the time of the insured's death, the beneficiaries of the life insurance policy may choose how they would like to receive the death benefit. Lump Sum: The beneficiary will receive the full amount of the death benefit at one time.
What are the most common settlement options in a life insurance program quizlet?
What are the four most common settlement options? lump-sum payment, proceeds left with the company, limited installment payment, and life income option.
What's the average life insurance payout?
This is a difficult question to answer because so many variables are involved, including the type of life insurance policy, the age and health of the insured person, and the death benefit. However, some industry experts estimate that the average payout for a life insurance policy is between $10,000 and $50,000.
Are settlement options taxable?
The general rule of taxability for amounts received from settlement of lawsuits and other legal remedies is Internal Revenue Code (IRC) Section 61 that states all income is taxable from whatever source derived, unless exempted by another section of the code.
What is the purpose of settlement options quizlet?
What is the purpose of a fixed-period settlement option? To provide a guaranteed income for a certain amount of time.
What is a single life settlement option?
A single-life payout is an annuity or pension option that means that payments will stop when the annuitant dies. In a joint-life payout, payments continue after death to the annuitant's spouse. Single-life payouts are generally larger on a per month basis since the payments stop upon the death of the annuitant.
What are settlement options for life insurance policies except?
All of the following are life insurance settlement options, EXCEPT: There are four settlement options: interest only, fixed-period installments (period certain), fixed-amount installments and life income. An automatic premium loan is a policy loan provision.
What is a fixed amount settlement option?
Fixed Amount Option — an option that a life insurance beneficiary may select as a settlement, whereby the policy proceeds are paid through periodic installments of fixed amounts until the principal and interest are exhausted.
How are payments determined on life income settlement option?
Life Income A life income settlement is also known as a life annuity. It lets you convert the death benefit to fixed, regular annuity payments for the rest of your beneficiary's life. The insurer guarantees an annual annuity amount based on the beneficiary's expected lifespan and the death benefit amount.
What are settlement options which option should you choose quizlet?
There are four settlement options: interest only, fixed-period installments (period certain), fixed-amount installments and life income. An automatic premium loan is a policy loan provision. The interest only option leaves the proceeds with the insurer and pays the interest to the beneficiary on an installment basis.
What is a joint and survivor settlement option?
A joint and survivor annuity is an annuity contract that guarantees payments so long as the contract owner or a secondary annuitant lives. Payments are slightly lower, but they last longer. Provisions can be added for making payments to a third party should both annuitants die before payments exceed the principal.
What is single life settlement option?
Single-life payout describes a pension or annuity settlement that only provides funds to one person. You may also get the option to select single-life payouts if you pay into your employer's retirement benefits scheme. The single-life payout option provides monthly payments until the account holder dies.
What is interest only settlement option?
Definition. What does Interest Only Settlement Option mean? This is a life insurance settlement option in which the insurance company keeps the proceeds from the life insurance policy and invests it, promising the beneficiary a guaranteed minimum rate of interest.
What is an option settlement?
Options Contract Settlements. Settlement is the process for the terms of an options contract to be resolved between the relevant parties when it's exercised. Exercising can take place voluntarily if the holder chooses to exercise at some point prior to expiration, or automatically, if the contract is in the money at the point of expiration.
What is a physically settled option?
Physically settled options are those that involve the actual delivery of the underlying security they are based on. The holder of physically settled call options would therefore buy the underlying security if they were exercised, whereas the holder of physically settled put options would sell the underlying security.
Who handles the settlement of options contracts?
Although settlement is technically between the holder of options contracts and the writer of those contracts, the process is actually handled by a clearing organization. When the holder exercises, or an option is automatically exercised, it's the clearing organization that effectively resolves the contracts with the holder.
Who handles options exercise?
Whether you are exercising options you own or receiving an assignment on contracts you have written, that part of the process goes relatively unseen and is all handled by your broker.
Is a stock option cash settled?
Physically settled options tend to be American style, and most stock options are physically settled. It isn't always immediately obviously when looking at options as they are listed whether they are physically settled or cash settled, so if this aspect is important to you it's well worth checking to be absolutely sure.
How many settlement options are there for life insurance?
This is one of the more confusing life insurance settlement options because there are four types of options to choose from. Along with the straight life income option explained above, there are three other options.
What is settlement in life insurance?
A settlement is the way in which your life insurance policy proceeds are paid out. There are many life insurance settlement options that can be confusing at first; your policy may pay out a lump-sum cash payment, life income, a fixed amount, or interest paid periodically. As a policyholder, you can usually choose the settlement method you prefer ...
What is a specific life option?
The specific life option allows the beneficiary to give the insurance company a payout schedule to follow. If the beneficiary dies before the period is over, a secondary beneficiary will receive the rest of the payments.
What is life income option?
The life income option means the beneficiary will receive payments for his or her entire lifetime. If the beneficiary chooses this settlement option, the insurance company will decide how much income the beneficiary will receive each year based on age and gender although the company may purchase an annuity instead.
When do insurance payments stop?
Payouts stop when the beneficiary dies. If the beneficiary dies sooner than expected, the insurance company can keep the unpaid amount in most cases. This option tends to work best for people who want guaranteed payments for life but do not need a large sum of money at once.
Can you choose a lump sum payout?
As a policyholder, you can usually choose the settlement method you prefer although your beneficiary may also get to choose. Most beneficiaries choose a lump sum payout but it’s a good idea to explore other options. Many life insurance companies offer a guaranteed interest rate on all settlement options with the exception of a lump sum.
What are the four most popular alternative settlement options?
According to IRMI, the four most popular alternative life insurance settlement options are (in no particular order): the Interest Option, the Fixed Period option, the Fixed Amount option, and the Life Income option." It is unclear to me as a writer if these statistics include the newer Retained Asset Account option.
What is the best settlement option for you and your family after the loss of a loved one?
So what is the Best Settlement Option for you and your family after the loss of a loved one? The best settlement choice more than likely will be the option that provides you with both the safest place to put your money combined with a low rate of return, until you are able to consider the best long term solution.
What is interest income option?
The interest income option is when the insurance carrier keeps the death benefit and pays a defined interest amount on the principal accruing daily, monthly, depending on their rules, paid out monthly or typically quarterly. You would generally receive a check at each agreed upon period. With this settlement option, the interest income is somewhat similar to having a bank hold the money and pay you interest.
What is fixed amount option?
A fixed amount option, very similar to the Fixed period, may allow you to set a specific dollar amount that you receive at given intervals. When the full principal plus any interest are depleted your payout will end.
Is fixed period the same as fixed amount?
Both Fixed Period and Fixed Amount are relatively similar. In some ways they are the opposite. Some insurers will allow you to set a Fixed period of time for which you will receive the principal and interest. The fixed period life settlement choice should be able to forecast for how long you will be able to do this.
Is a life income settlement periodic certain?
There are possibly other slightly different versions of a Life Income Settlement involving a period of time, I have seen these referenced as Periodic Certain. As with many of these settlement choices some insurers will have their own exact names for them.
Is period and amount good?
Both the Period and Amount options may be of good value for people that are potentially prone to mishandling money, people that may live on a fixed income and need just a little bit more per year. Certainly various lawyers may also be able to come up with some reasons for this option as a good option.
What is interest only settlement?
2. Interest income (also known as interest only) With an interest-only settlement, the insurance company holds the principal of the death benefit and pays any earnings on that amount to the beneficiary. You can think of this settlement format as a savings account you fund for your loved one.
How are life settlements paid?
The proceeds from a life settlement are paid to you directly in one lump-sum payment, and there are no restrictions on how you use the funds. You could set up an investment account with named beneficiaries, for example. You could also pay off debt, earmark the money for your future healthcare expenses, or buy an RV.
What is lump sum payment?
1. Lump-sum payment. Lump-sum payment is the simplest and most common insurance type of life insurance settlement. Once the insurance company receives and validates the life insurance claim, your beneficiary will be paid the death benefit in a single, tax-free payment. As with all life insurance settlements, there are no restrictions on how ...
What is a fixed period life settlement?
The fixed period life settlement option distributes the death benefit plus any earned interest over a specific period of time. That monthly check functions as tax-free income and can help your beneficiary cover living expenses. This format is particularly appropriate when you want to ensure your beneficiary can keep making mortgage payments. Say he or she has 10 years left on a mortgage with $1,5000 monthly payments. A monthly settlement payment of $1,500 plus interest that lasts for 10 years would help your beneficiary reach the point of owning that home free and clear.
Is lump sum a good payment?
As you might guess, lump-sum payments are best suited for beneficiaries you trust to be responsible. If you are concerned your beneficiary might spend the funds too quickly, look to a different type of settlement that would provide a series of smaller payments instead.
Is interest settlement a payout?
An interest accumulation settlement is not really a payout at all. In this case, the insurance company hold the funds indefinitely on behalf of the beneficiary. The interest earned is added to the account balance. If the beneficiary needs to access the funds, he or she could request a withdrawal. As with an interest-only settlement, it’s wise to confirm that these funds will be invested to earn a competitive growth rate.
Is a life insurance settlement taxable?
Be aware, though, that some of your life settlement proceeds may be taxable. Not everyone qualifies for a life settlement, however. For example, life insurance buyers expect selling policyholders to be at least 65 years old. Buyers also prefer policies worth $50,000 or more.
Lump-Sum Payout
Most people who buy life insurance will designate their beneficiary and not give it another thought.
Fixed Income Option Insurance Settlement
Fixed income option insurance settlement is also known as a fixed period settlement where the death benefit proceeds are paid to the beneficiary over a period of time.
Life Income Settlement Option
The life income settlement option provides your beneficiary with a monthly income for their life.
Interest Payments
With interest payments, the insurance company holds onto the death benefit.
Fixed Amount Settlement
You can choose to have your beneficiary receive a certain amount of money each year.
Beneficiary Elects Payment Option
If no option was chosen, the insurance company will give the beneficiary the option of choosing how to get paid.
Conclusion
While most death benefits are paid in a lump sum, it’s good to know you have options.
Who has the right to select the settlement option?
c. The policyowner has the right to select the settlement option.
What is interest only option?
The interest only option leaves the proceeds with the insurer and pays the interest to the beneficiary on an installment basis.
What is fixed period option?
A fixed period option pays policy proceeds in equal installments over a period of months or years. Which of the following is NOT considered when determining the amount of the installment?
Which is larger, the longer time period or the larger the payment amount?
The correct answer is: The larger the payment amount, the longer time period payments will be received.
What is payment consisting of?
a. Payments consist of principal and interest.
