Life Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
A surviving spouse is the beneficiary of a $250,000 life insurance death benefit. She wants a dependable income stream for herself, does not need the principal right away, and wants the proceeds preserved so they pass to her children when she dies. Which settlement option best matches these objectives?
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Answer & full 3-part explanation (select an option above, or peek)
Why D is correct
The interest-only option keeps the principal with the insurer, pays the beneficiary just the interest as periodic income, and then pays the intact principal to the contingent beneficiaries - her children - when she dies. This matches all three goals: income now, no immediate need for principal, and preservation of the proceeds for the next generation. The other options either pay everything out at once, exhaust the principal over a stated period, or end at her death with nothing passing as principal.
Why the other options are wrong
- A) A lump-sum payment puts the full amount in her hands immediately and leaves nothing with the insurer to generate income or pass to the children later.
- B) Fixed-period installments pay out both principal and interest and exhaust the proceeds within the stated period, leaving no principal for the children.
- C) Life income payments end entirely at her death, so no principal from the proceeds would pass to the children.
Memory hook
Interest-only: live on the yield, leave the nest egg parked for later.