Fixed Amount Option
Updated on October 4, 2023
The Fixed Amount Option is a feature or rider that can be added to certain life insurance policies, typically whole life or universal life policies. This option allows the policyholder to receive a predetermined, fixed sum of money as a death benefit, in addition to any other benefits specified in the policy. It provides policyholders with a guaranteed payout to their beneficiaries upon their demise.
How does the Fixed Amount Option work?
Choice of Beneficiaries – The policyholder selects one or more beneficiaries who will receive the death benefit when the insured person passes away.
Fixed Sum – With the Fixed Amount Option, the policyholder decides on a specific sum of money that will be paid out to the beneficiaries upon the insured’s death. This amount remains constant throughout the life of the policy.
Additional to Base Benefit – The fixed amount is in addition to any other death benefits provided by the base life insurance policy, which may include a sum assured or the policy’s cash value.
What are the benefits of the Fixed Amount Option?
Certainty – The primary benefit of the Fixed Amount Option is the certainty it provides. Policyholders can ensure that a specific sum of money will be paid to their beneficiaries, regardless of the policy’s cash value or other factors.
Financial Planning – It allows for precise financial planning. Policyholders can tailor the fixed amount to meet specific financial needs, such as covering mortgage payments, educational expenses, or leaving a legacy for their loved ones.
Protection – It provides an additional layer of protection for beneficiaries, ensuring that they receive a known amount, which can be valuable in times of financial need.
Further understanding Fixed Amount Option
The Fixed Amount Option in insurance allows policyholders to designate a predetermined sum of money that will be paid to their beneficiaries upon their demise, providing certainty, precise financial planning, and added protection for loved ones. While it may increase premiums, individuals should assess its suitability based on their financial goals and consult with experts when considering this option.