Under which life insurance settlement option does the beneficiary receive the death proceeds in equal payments over a specified number of years?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
The fixed period option (also called the period certain option) pays the death proceeds to the beneficiary in equal installments over a stated number of years. The amount of each payment is determined by the proceeds, the interest rate credited, and the length of the period. This is one of the standard settlement options for life insurance proceeds, along with the lump sum, the interest only option (proceeds stay with the insurer and interest is paid to the beneficiary), the fixed amount option (payments of a set dollar amount until exhausted), and the life income option (payments for the beneficiary's lifetime).
Why the other options are wrong
- B) The interest only option keeps the principal with the insurer and pays only the interest to the beneficiary. The principal amount remains payable at a later date under the option terms. The correct answer is the fixed period option, which pays the proceeds in equal installments over a set number of years.
- C) The lump sum option pays the entire proceeds in one payment. It does not distribute the proceeds in equal installments over a specified number of years. The correct answer is the fixed period option, which pays the proceeds in equal installments over a set number of years.
- D) Extended term is a nonforfeiture option that uses the cash value to buy paid-up term coverage when a policy lapses. It is not a settlement option for the payment of death proceeds.
Memory hook
Fixed period = proceed-check rhythm for N years. Spread the death benefit out like a self-made annuity.