A beneficiary chooses to receive the death benefit in installments of exactly $1,000 per month until the proceeds are exhausted. This settlement option is:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Under the fixed amount option, the beneficiary receives a set dollar amount each period — here $1,000 monthly — until the proceeds plus interest are exhausted; the number of payments depends on the proceeds, the interest rate, and the installment size. The fixed period option instead pays over a stated number of years, so the amount varies. Life income pays for the beneficiary's lifetime, with the amount based on life expectancy. Interest only pays the earnings on the proceeds while leaving the principal intact. The distinguishing feature here is the fixed dollar amount chosen by the beneficiary.
Why the other options are wrong
- B) The fixed period option pays over a stated number of years, making the installment amount vary. The question specifies a fixed dollar amount, which is the fixed amount option.
- C) Life income pays for the beneficiary's lifetime, with no fixed total or number of payments. Here the option ends when the proceeds run out, not at the beneficiary's death.
- D) Interest only pays the earnings on the proceeds while keeping the principal intact for later payment. The described option pays down the principal each month.
Memory hook
Fixed amount = a chosen check size; the number of checks is the variable.