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 and pays only the interest earned to the beneficiary for a stated period. At the end of the period, the principal is paid out, typically to the beneficiary or another named payee. It offers flexibility because the beneficiary can later elect a different settlement, subject to the policy terms. This option is useful when the beneficiary does not need immediate income but wants the proceeds preserved and to earn a return. The insurer manages the principal and guarantees a minimum rate of interest, and any excess interest may be credited at the insurer's discretion.
Why the other options are wrong
- Paying a fixed amount drawn from the principal describes the fixed-amount settlement option, which depletes the principal over time.
- Lifetime interest payments with the principal permanently preserved describe no standard life insurance settlement option; the principal is eventually paid out.
- The insurer does not automatically convert the proceeds into an annuity under the interest-only option; annuity conversion is a separate election.
Memory hook
Interest only = the insurer babysits the principal and sends you the interest checks.