Which settlement option pays interest to the beneficiary while the principal is held by the insurer?

Which settlement option pays interest to the beneficiary while the principal is held by the insurer?

• A. Life Income
• B. Interest Only Option
• C. Joint Life Income
• D. Annuity Certain

Answer: (B)

The idea being tested is how a settlement option handles the death benefit versus the principal. The option that pays only the interest to the beneficiary while the principal stays with the insurer is designed to preserve the original death benefit. In this setup, the insurer uses the death benefit as the principal and issues periodic interest payments to the beneficiary, keeping the principal intact for potential later payout or other arrangements. For example, with a $100,000 principal and a 6% interest rate, the beneficiary would receive $6,000 per year in interest, while the $100,000 remains held by the insurer. The other options either convert the amount into ongoing payments that draw down the principal over time or provide lifetime payments based on the recipient’s life, or a fixed period of payments, rather than simply paying interest while the principal is held.

The idea being tested is how a settlement option handles the death benefit versus the principal. The option that pays only the interest to the beneficiary while the principal stays with the insurer is designed to preserve the original death benefit. In this setup, the insurer uses the death benefit as the principal and issues periodic interest payments to the beneficiary, keeping the principal intact for potential later payout or other arrangements. For example, with a $100,000 principal and a 6% interest rate, the beneficiary would receive $6,000 per year in interest, while the $100,000 remains held by the insurer. The other options either convert the amount into ongoing payments that draw down the principal over time or provide lifetime payments based on the recipient’s life, or a fixed period of payments, rather than simply paying interest while the principal is held.