Life Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 1/5
With the interest-only settlement option, what does the beneficiary receive?
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Answer & full 3-part explanation (select an option above, or peek)
Why C is correct
Under the interest-only option, the insurer holds the death benefit principal and pays the beneficiary the interest it earns on a periodic basis, typically monthly or annually. The principal remains intact and is paid out later, either in a lump sum or through another settlement option, when the beneficiary chooses. This option is often used to provide a steady income stream while preserving the capital for future needs, such as a surviving spouse's support or a child's education, and the principal remains available for the beneficiary's later election.
Why the other options are wrong
- A) Paying the full principal immediately is the lump-sum option, not interest-only.
- B) Equal principal installments plus interest on the declining balance describe the fixed-amount or fixed-period options.
- D) Interest-only pays the earnings out to the beneficiary; the interest is not compounded back into the principal.
Memory hook
Interest-only = live on the interest, keep the principal in the vault.