A life insurance policy was issued with no settlement option elected by the policyowner. After the insured dies, the death proceeds are held by the insurer. Under standard policy provisions, who may elect the interest-only settlement option, and when?

Why A is correct

When the policyowner has not directed a settlement option at issue or later, the right to choose how proceeds will be paid generally passes to the beneficiary at the time of the death claim. The beneficiary may then elect an option such as interest only, under which the insurer retains the principal and pays the beneficiary the interest as it accrues. The beneficiary's choice operates as of the insured's death and controls the payment of the proceeds.

Why the other options are wrong

• B) Settlement options are not imposed by the insurer based on the number of beneficiaries; the election belongs to the beneficiary or the policyowner, not the company.
• C) The agent has no authority to elect a settlement option for a claimant; the agent's role is limited to assisting with the claim paperwork.
• D) Probate is involved only when proceeds are payable to the estate because no valid beneficiary exists; a named beneficiary takes the proceeds free of probate and makes the election personally.

Memory hook

Interest only: keep the pot, skim the earnings. Principal stays parked, income drips out.