What is a lump sum payment?

By Pradeep Yuvaraj | March 6, 2011

Lump Sum is a single payment, for the total amount due, as opposed to a series of periodic payments.

In general, a lump sum is a single payment which gives all of the benefits owed to the person in single go.

Lump sum payments can be seen in cases of retirement benefit packages, court-ordered financial settlements, lottery winnings or loans. In case of life insurance claims by beneficiaries also lump sum payment is done by the insurance companies.

In some financial situations the person receiving the lump sum has a choice between lump sum and fixed regular payment over a period of time (as annuity, installment etc.) For example, loans, retirement benefits, etc. In case of a car loan the loan amount is paid by the financial institution/ bank to the company directly. In case of a personal loan the lump sum is paid to the person.

In case of home loans the payment offered by the financial institution / bank may or may not be lump sum. The loan amount may be paid only in installments with the progress of the house building.

Similar is the case with the retirement benefits pay out. The beneficiary can choose between lump sum and regular fixed payment (annuities).

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About Pradeep Yuvaraj

Pradeep Yuvaraj is a Co-Founder and Director at Finerva Financial Solutions Private Limited, a financial education company focused on personal finance education. He has penned over 250 articles relating to Personal Finance and clocked over 500 hours of educating individuals on managing personal finance. He is a serial entrepreneur and has been associated with 7 Start-ups. His entrepreneurial experience spans industries as varied as Education, Gas Engineering, Automobile Design, Software development and more recently a Pure play presentation design company. Prior to turning entrepreneur in 2005, he has worked for 3 of the top ten companies of the world - Shell, ExxonMobil and Total SA. This experience included handling Branch Operations, Channel Sales and Business Development across 5 states over a period of 8 years. He holds an MBA from Symbiosis and an Electronics Engineering Degree from the University of Pune.

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