"We all have heard stories about people falling into large sums of money, only to see it go up in smoke," says Jason Konopik, AMZ Financial's chief financial officer. "The reality is that a predictable stream of income, rather than a lump sum, helps beneficiaries maintain a consistent lifestyle." (See: " How much life insurance do you need?")Know the tax implications if you choose to require installment payout There are, however, tax implications if you go the installment route, notes William H. Byrnes, an associate dean at the Thomas Jefferson School of Law in San Diego, in a report he co-authored with colleague Robert Bloink. The report points out that any interest accrued by the proceeds being held by the insurer can be taxed. But a lump sum payout comes tax-free. Byrnes and Bloink add that insurance companies need to make it clear to clients that "owner-directed distributions" cannot be reversed once in place. But both are still fans of these new products because these policies can give prospective purchasers exactly what they have been looking for - control. What motivates us to buy life insurance as we grow older? A 2012 study by Northwestern Mutual provides some insight into how our age affects why we consider or actually purchase life insurance. The company, which surveyed more than 2,000 people, found that:
- In the 18- to 34-year old segment, 28 percent said the birth of a child was the main reason to seriously consider insurance.
- Among 35- to 44-year-olds, 34 percent said they thought life insurance could help protect their families.
- In the 45- to 54-year-old group, 36 percent agreed that a policy might provide "peace of mind" by helping their families. About 40 percent in this category added that life insurance could help them pay off a mortgage.
- In the 55 and older segment, those surveyed said they bought the policy to help provide a more secure retirement for loved ones.