• Life insurance death benefits are paid when the insured individual dies. The payment of the death benefits can be made according to several methods. Normally, payment of death benefits is specified by the policy owner or the insured individual. However, the beneficiary may determine how benefits will be paid if no clear instructions are left by the person who was insured or the policy owner.
  
  

Lump Sum

• A lump-sum distribution means the life insurance company distributes the death benefit all at once. The total death benefit is given to the beneficiary in one check, and the proceeds can be spent, or invested, by the beneficiary as the beneficiary sees fit.
  
  

Interest Payment

• The death benefit can be held with the insurance company. Under this scenario, the insurance company invests the proceeds of the death benefit on behalf of the beneficiary. The life insurance company then pays interest to the beneficiary quarterly or annually while keeping the principal or death benefit amount intact and invested.
  
  

Annuity Payments

• The death benefit can be annuitized. In this scenario, an annuity is purchased with the proceeds of the death benefit. Payments are made to the beneficiary over a set number of years or for the life of the beneficiary. Under a life-only option, payments are made until the beneficiary dies. When the beneficiary dies, no further payments are made to any beneficiaries of the original beneficiary. With a period-certain annuity, the payments go on for a set number of years. If the beneficiary dies prior to receiving all of the death-benefit proceeds, the beneficiary can choose beneficiaries of his own to receive the remainder of the death benefit.