Life Insurance in the millions....

Question

Isn't it true that when you have a life insurance policy in the hundred thousands and even the millions the life insurance company sometimes doesn't have the money to pay you all up front. And they will give you the money in the form of annuity payments? Sometimes those annuity payments will spread over months and even years. Those insurance companies do not give those people the full amount of those hundred-thousand dollar policies. Or million dollar policies?...Am I right?

They only give people who have a $10K life insurance policy or something in that range all of their money as soon as the person is deceased!?

Answer 1

Nope, it's not true.  Insurance companies have the money.  And, your state insurance department has an insolvency fund, in the billions, to pay claims under the unlikely chance that your insurer goes insolvent.

An annuity is different from life insurance.

The life insurance pays out the person specified, exactly how the policy specified they were to be paid.  But if the person is a minor, sometimes a TRUST is set up to make sure that their guardian doesn't, for example, blow it all in Las Vegas.

Answer 2

The money is paid to the beneficiary the way the insured asked it to be paid out.  So, if the insured asked for a one lump sum that is what the beneficiary would get.  

Insurance companies do not insure that whole risk.  Behind the scenes they pay other insurance companies to take part of the risk and they pay them a premium for that risk.  So, they are usually not on the hook for the whole amount.   The customer never knows the difference because the one insurance company takes care of the whole claim and pays out the whole amount.   They will collect from the other companies later.  It is called reinsurance.   Some companies take on the whole risk and some don't.  But customers never know the difference.    So, if i confused you or put too much info to understand.

Answer 3

We have genworth-which is owned by General Electric/GE so no-thats not true. My husbands policy is  for 1 million and if something happened I would be paid within 1 month a full check. I think if you went for a small company, then maybe but its all individual

Answer 4

They almost always do annuities if you have large amounts

Answer 5

Insurance companies are regulated at the state level, among other things to ensure they have adequate capital. That's not say that there aren't failures; there are. But they are fairly rare. Do keep in mind that insurance contracts are not protected by insurance the way bank deposits are.

Also, insurance companies are rated by private organizations such as Standard & Poors. That will give you a decent idea of their financial strength. One link is below.

Answer 6

Annuity is a OPTION, not a certainty. An insurance company should have plenty of reserves to pay face values if that's what the policy owner chooses.

However, if your loved one has a $2 million life insurance policy, and you are the beneficiary, and your loved one doesn't think you could responsibly manage a lump sum pay out, he/she can specify when they take out the policy that the death benefit be payed to you as an annuity, such as $100k per year (plus interest) for 20 years.