Life Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 1/5
Under an interest-only settlement option, the proceeds of a life policy are:
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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 death proceeds deposited with the insurer, which pays the beneficiary interest on the principal for a stated period or for the beneficiary's lifetime. The principal, the face amount, remains intact and can be paid later by lump sum or another option. This is often used when the beneficiary needs current income but also wants to preserve capital, such as funding a child's education over time. It differs from fixed installments, which gradually exhaust principal, and from life annuities, which convert principal into a lifetime income.
Why the other options are wrong
- B) Equal installments until the fund is exhausted describe the fixed amount or fixed period options, not interest only.
- C) Variable options may involve investment accounts, but interest only holds proceeds in the insurer's general account at a guaranteed interest rate.
- D) A life annuity is a separate election; interest only does not convert to an annuity.
Memory hook
Interest only = earn the interest, keep the cake. Principal waits for later.