What is the average life insurance payout? » Effortless Insurance (2024)

If you are shopping for a life insurance policy, or if you are named as the beneficiary of another person’s life insurance, you may be wondering how much the average life insurance payout is.

But it is almost impossible to say what the average life insurance payout is since life insurance policies can be so very different, and their values can vary significantly. The payout of a life insurance policy will be determined by a variety of factors, so you’ll only know how much your policy will pay out by doing some research.

As you shop for a life insurance policy, be sure to compare rates from multiple companies. Whether you are looking for term life insurance, whole life insurance, or something different, you should make sure you don’t end up overpaying for your coverage.

You can use our free quote tool above to get started shopping for life insurance coverage today.

How much is a life insurance payout in the U.S.?

The average life insurance payout in the United States is around $167,000. But truthfully, this number is almost meaningless. There is a much better way to determine how much your beneficiaries will get from your policy, and that’s to familiarize yourself with the actual policy.

If you have life insurance, you should be able to find the specifics of your policy, which include the death benefit you signed up for. This death benefit will be what your beneficiaries receive from your policy, minus any financial obligations you need your policy to cover.

This is the same if you are the beneficiary of someone else’s life insurance policy. You will receive the amount stated in the death benefit. But the actual amount you receive may depend on a number of factors, including:

• Any outstanding debts the policyholder had
• Other named beneficiaries on the policy
• Funeral costs the policy was slated to cover
• Family or medical payments the policy was slated to cover

To put this in perspective, you may be the sole beneficiary of a life insurance policy with a $200,000 death benefit. But if the policy was to first cover the policyholder’s outstanding debts and funeral expenses, the amount you get could be far less than $200,000.

If all of the information about payouts and death benefits seems confusing, you may be able to use a life insurance payout calculator to help you figure out exactly how much you will get. Life insurance payout calculators may help you figure out how much a certain death benefit will pay based on expenses, income taxes, inflation, and specific investment decisions.

What is the best thing to do with a life insurance payout?

If you have received a life insurance payout, or if you are a named beneficiary of a policy and expect to receive one, you may be wondering what you should do with that money.

Before you make any financial decisions with your life insurance payout, you should take ample time to think about your options. It’s wise not to make immediate decisions — especially if you’re receiving a large sum of money — because you could regret those decisions in the long run.

Once you’ve taken time to assess your need and the needs of your family, you could do the following:

• Pay off any debt: If you have a lot of debt in credit cards, student loans, or other places that tend to have high-interest rates, paying that off would be a great way to set yourself up for success down the line
• Start an emergency fund: If you don’t have much when it comes to savings or an emergency fund, you could use a portion of the insurance payout to start a liquid, interest-bearing account
• Set up an annuity or receive the payout in installments: When people receive a life insurance payout but are in need of monthly income, setting up an annuity for the payment, or receiving the payment in monthly installments, may allow you to utilize it the best way while allowing a portion of the policy to continue growing through interest
• Make an investment: Using the insurance payout to start investing in a 401(k) or Roth IRA could be a good decision if you don’t need the money immediately. You could invest the money in other ways, as well, though you may want to speak to a financial advisor before making any decisions
• Start a college fund: People with children may consider starting a college fund so their children would be able to go to college without taking out substantial student loans
• Support a charity: If you have what you need and don’t need the payout, or a portion of the payout, from a life insurance policy, you could choose to donate the money to a charity or other non-profit organization to help others

In addition to the options listed above, there are plenty of other things you could choose to do with the money from a life insurance policy payout. Once you have come to a decision, seek counsel to make sure you’re making the right moves and know exactly how to do so without being penalized later, especially with regard to income taxes.

What types of life insurance policies include a payout?

Most life insurance policies include a death benefit, but some policies offer very little money — especially if the policyholder purchased no exam life insurance — while others have a payout of hundreds of thousands of dollars. How much you will receive as the beneficiary of a policy completely depends on the policy itself and how it is set up.

If you are shopping for life insurance, you will want to consider your needs and the needs of any beneficiaries when choosing your policy. This will help you both plan for your future and support your loved ones.

In fact, you can use our free quote tool below today to shop around for life insurance coverage from top companies in your area.

Case Studies: Utilizing Different Types of Life Insurance Payouts

Case Study 1: Term Life Insurance for Temporary Coverage

John, a 35-year-old individual, recently got married and wants to ensure financial protection for his spouse in the event of his untimely death. He purchases a 20-year term life insurance policy with a death benefit of $500,000. This policy provides coverage for the duration of the term, offering peace of mind during the years when his family’s financial obligations are the highest.

In the event of his death within the term, his spouse will receive the full death benefit, which can be used to pay off the mortgage, cover living expenses, and provide for their children’s future.

Case Study 2: Whole Life Insurance for Estate Planning

Sarah, a 50-year-old individual, has accumulated significant assets over the years and wants to ensure a smooth transfer of wealth to her heirs upon her passing. She purchases a whole life insurance policy with a death benefit of $1 million. This policy not only provides a lifelong death benefit but also accumulates cash value over time.

Sarah plans to use the cash value to supplement her retirement income and potentially leave an additional legacy for her loved ones. The death benefit will help cover any remaining estate taxes or financial obligations, ensuring that her beneficiaries receive the full value of her estate.

Case Study 3: Universal Life Insurance for Business Succession Planning

Mark, a 45-year-old business owner, wants to protect his business and ensure a smooth transition in the event of his death. He purchases a universal life insurance policy with a death benefit of $2 million. This policy offers flexibility in premium payments and the potential to accumulate cash value over time.

Mark designates his business partner as the beneficiary of the policy, ensuring that funds will be available to buy out his share of the business and provide financial stability during the transition period. The death benefit provides liquidity to cover any outstanding business debts and allows for the continuation of the business without disruption.