The payment of proceeds by an insurance company to the insured to settle an insurance claim within the guidelines stipulated in the insurance policy is the insurance settlement.
Most life insurance policies provide for payment in a lump sum. The four most common alternative settlement approaches are: the interest option, under which the insurer holds the proceeds and pays interest to the beneficiary until such time as the beneficiary withdraws the principal; the fixed period option, under which the future value of the proceeds is calculated and paid in installments for a specified number of years; the fixed amount option, under which a fixed dollar amount is paid in periodic installments until such time as the principal and interest are exhausted; and the life income option, under which a stipulated amount is paid periodically to the beneficiary throughout his or her life.
In other words,
There are three types of settlement possible, each of which is explained below.
Replacement :
To pay the cost of replacing items (excluding any betterment) covered under the Policy.
Reinstatement :
To pay all costs incurred in rebuilding the damaged property to a new condition without deductions for depreciation
Indemnity :
To put you back in a similar position as you were in immediately prior to the loss.
The different methods for paying out a benefit available to beneficiaries when an individual covered by a life insurance policy dies. The simplest method is a lump sum payment of the value of the policy.
It is also possible to leave the entire settlement with the insurance company and collect interest, retaining the right to withdraw principal funds at any time. Payment schedules are also available based on payment amount or duration. In either case, interest will accrue on the money that remains with the insurance company.
Two Settlement Technique
Managing Expectations – Having had his expectation managed, will allow to foresee an outcome different than anticipated. Settlements are the same, and managing both the clients, as well as those of the opposing party’s, expectations is a great way to help avoid an impasse. Settlements are always a compromise and before entering discussions setting out expectations may avoid problems later.
Decision Tree Analysis – If you have never worked with a decision tree it is strongly recommend you try it. The process itself can be extensively debated, however, as another tool it’s is worth a try. The essential component to the “tree” is trying to place an empirical approach to evaluating and settling a claim.
Decisions are raised, values are assigned and an outcome is determined.Once completed, a decision tree is a tool that can be shown to an opposing party to explain the basis for a position being taken. Many will argue the values and measures that you placed on the various “decision” points, but it is a technique that can remove the emotional aspect of a negotiation and demonstrate an objective approach to a decision.
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