Life Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
Under an interest-only settlement option, the insurer:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
The interest-only option keeps the principal with the insurer, which pays interest on the proceeds to the beneficiary periodically — often monthly or annually. The principal is paid out later, to the beneficiary at an agreed date or to another designated payee. This option preserves the fund for a future purpose while providing current income. The interest payments are taxable income, while the principal remains income-tax-free when eventually paid.
Why the other options are wrong
- B) Paying the entire proceeds immediately describes the lump-sum option, not the interest-only option.
- C) Paying a fixed amount until the fund is exhausted describes the fixed-amount settlement option.
- D) Lifetime-only income describes the life income option, where payments continue for the beneficiary's life.
Memory hook
Interest-only = park the principal, live off the interest, spend the principal later. The insurer is the banker.