Beneficiaries✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
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
Under the interest-only option, the insurer retains the death proceeds as principal and pays the beneficiary interest, typically at a guaranteed rate, at stated intervals. The principal remains with the insurer and is payable at a later date - for example, to a contingent beneficiary or the estate when the primary beneficiary dies, or at the end of a designated period. The interest payments are taxable as ordinary income, while the principal itself is not. This option is often chosen to provide current income while preserving the principal.
Why the other options are wrong
- B) Immediate payment of the full principal describes the lump-sum option, not the interest-only option.
- C) Fixed-period installments amortize principal and interest over a set term. The interest-only option does not amortize the principal.
- D) The principal is held for the benefit of the beneficiary or successors. It is not returned to the policyowner.
Memory hook
Interest-only means the money works, the check arrives, and the principal waits.