What is meant by "settlement option" in the context of life insurance?

The term "settlement option" in the context of life insurance refers to the various methods available for beneficiaries to receive the death benefit after the insured person passes away. When a policyholder dies, the insurance company pays out the death benefit, and the settlement options determine how that payment is distributed.

For example, beneficiaries may choose to receive the full amount in a lump sum, or they may opt for installments over a specified period or in the form of an annuity that provides regular income. Each option offers different advantages based on the needs of the beneficiaries, such as immediate cash needs or a structured payout for long-term financial security.

Understanding these options is crucial for both policyholders and their beneficiaries, as it allows for informed decision-making regarding the most beneficial way to handle the death benefit upon the policyholder's death.