Which life insurance settlement option pays the entire death benefit to the beneficiary in a single payment?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
The lump sum settlement option pays the full death proceeds to the beneficiary at once in one payment. It is the most common choice because it gives the beneficiary immediate, complete access to the funds and maximum flexibility in deciding how to use them. The other options, such as interest only, fixed period, fixed amount, and life income, are installment arrangements in which the insurer retains the principal and distributes it over time according to the chosen method. Each alternative exists to serve a beneficiary who prefers a structured income stream over a single payment.
Why the other options are wrong
- B) The interest-only option retains the principal with the insurer and pays only the interest earned to the beneficiary. The principal is paid out later, not immediately, so this is a deferral of the proceeds rather than a single payment.
- C) The fixed-period option pays the proceeds out in installments over a stated number of years. The beneficiary receives multiple payments, whereas the lump sum is a one-time payment of the entire proceeds.
- D) The life income option pays periodic benefits for the beneficiary's entire lifetime. Because the payments continue indefinitely relative to a lump sum, this option functions like an annuity payout rather than a single payment.
Memory hook
Lump sum = take the whole pot now. All other options are installment plans on the pot.