• Interest option. The amount of the death benefit remains with the insurance company, and the interest on the amount is paid to the beneficiary on a regular basis. Withdrawal of the principal is often allowed under certain conditions.
  
• Fixed period. The death benefit is paid out at regular intervals, with interest, over a period of time specified in the policy.
  
• Life refund. The insurance company pays a set monthly amount to the beneficiary for the remainder his or her lifetime. Under this option it is possible for the beneficiary to receive more than the policy's stated death benefit if he or she lives for a long time. However, if the beneficiary dies after a short time, he or she might have received substantially less. The amount of the monthly payment is determined by the face value of the policy and the beneficiary's age and health status.
  
• Joint and survivor. Periodic payments are made for the duration of two lifetimes, rather than one. Joint and survivor settlement is a common option when a policy beneficiary is married.  If the spouse who is the primary beneficiary dies first, the surviving spouse will still receive regular payments.  The amount of a joint and survivor payment is determined by the age and health factors of both spouses.

Financial implications of owning life insurance

Medicaid

The cash value of a life insurance policy is generally considered to be an asset when determining Medicaid eligibility. Some or all of the proceeds from a loan using the policy as collateral might not be considered an asset under certain circumstances, however. If you are on Medicaid, you may wish to consult an attorney or financial adviser to fully understand any consequences of owning a life insurance policy.

Taxes

The cash value of a life insurance policy generally accumulates tax deferred. Withdrawals from the cash value are generally non-taxable until the withdrawal amount exceeds the total amount of premiums paid into the policy.

If a policy has a specifically named individual as the beneficiary, the law generally considers the death benefit to be reimbursement for the person's loss, and not income. For this reason, the death benefit is typically exempt from the federal income taxes and inheritance taxes that otherwise apply to the insured's estate. However, if a policy does not have a named beneficiary, or the beneficiary is deceased, the death benefit is paid to the insured's estate. Heirs to the estate will then have to pay full taxes on the money. If you are considering purchasing life insurance as an estate planning vehicle, you may wish to consult an attorney or financial adviser to fully understand the tax consequences.

Bankruptcy

The cash value and death benefit of a life insurance policy are fully exempt from creditors, all demands in any bankruptcy proceeding, and from execution, attachment, garnishment, or other legal process unless a statutory exemption, such as fraud, is applicable.

Exchanging your policy for a new one

Price competition and the development of new types of policies can make it a good idea to periodically review the price and coverage of your policy. However, replacing an old insurance policy with a new one is not always a good idea. Consider: