A beneficiary chooses to receive death proceeds as equal payments of a fixed amount until the proceeds and interest are exhausted. Which settlement option is this?

Why A is correct

Under the fixed amount option, the beneficiary receives periodic installments of a specified dollar amount, such as $500 per month, until the proceeds plus earned interest are exhausted. The payment size is fixed, but the number of payments depends on the principal, the interest earned, and the payout schedule. Under the fixed period option, the number of years is set and the payment amount varies; under life income, payments continue for life; and under interest only, only the interest is paid and the principal is preserved.

Why the other options are wrong

• B) The fixed period option pays over a stated number of years with the installment amount varying; here the installment amount is fixed instead. Because the dollar amount is what the beneficiary fixes, this option is the fixed amount plan rather than the fixed period plan.
• C) Life income guarantees payments for the beneficiary's lifetime regardless of whether the principal is exhausted; that is not what the fixed amount option does. The life income option is not limited by a principal balance, whereas the described plan ends when funds run out.
• D) Interest only pays the earnings on the proceeds and preserves the principal; the option described distributes the principal as well. The interest-only option would keep the principal intact, which conflicts with the exhaustion described in the stem.

Memory hook

Fixed amount = check size fixed, number of checks floats.