Settlement Option

Which settlement option pays income for the insured's lifetime with no payment after death?

1. A.Straight life incomeCorrect - lifetime income, nothing left at death.
2. B.Fixed amountFixed amount pays a chosen dollar figure until the proceeds are exhausted. How long that lasts depends on the size of the fund, so there is no lifetime guarantee and a balance can remain payable at death.
3. C.Fixed periodFixed period runs for a chosen span rather than a lifetime. If the payee dies before that span ends, the remaining installments continue to a successor, which is precisely what the stem rules out.
4. D.Interest onlyInterest only pays out earnings while the principal stays on deposit with the insurer. That principal remains payable after death, so this fails the no-payment-after-death condition.

Why: The straight life income option pays for life and ceases at death with no refund or guarantee.

Under the interest-only settlement option:

1. A.The policy is cancelledNothing is being cancelled. A settlement option governs how proceeds are paid out after a death claim has already arisen.
2. B.The insurer keeps the proceeds and pays interest to the beneficiaryCorrect - principal stays, interest is paid out.
3. C.The beneficiary gets a lump sum immediatelyA lump sum is a separate option, and choosing it would leave nothing on deposit to generate the payments described. The defining feature of this option is that the principal stays put.
4. D.Payments last exactly 10 yearsThis option carries no built-in end date; the principal stays with the insurer until it is called for. A stream running for a set span describes the fixed period option instead.

Why: The insurer retains the death proceeds and pays only the interest earned to the beneficiary, preserving the principal.

When Nadia Oyelaran files her claim, the insurer does not mail her a check. Instead it credits the 350,000-dollar death benefit to an interest-bearing account in her name at the insurer, sends her a book of drafts, and tells her she may write a draft for the entire balance at any time. What is this arrangement, and what should Nadia understand about it?

1. A.An interest-only settlement option, under which she may draw the interest but not the principal.Wrong. Under an interest option principal access is restricted by the terms elected. Here she may draft the entire balance at any time.
2. B.A fixed-amount settlement option, under which the insurer pays a set sum periodically until the proceeds are exhausted.Wrong. No periodic payment schedule has been established. She controls the timing and amount of every withdrawal.
3. C.A federally insured bank deposit account established for her by the insurer.Wrong. It is an obligation of the insurance company, not a bank deposit, and it carries no federal deposit insurance.
4. D.A retained asset account, an insurer obligation rather than a bank deposit, from which she may withdraw the entire balance at any time and whose credited interest is taxable to her.Correct. Full access is preserved, the balance is an insurer obligation rather than an insured deposit, and only the interest is taxable.

Why: This is a RETAINED ASSET ACCOUNT, a common default settlement method in which the insurer retains the proceeds, credits interest, and gives the beneficiary draft-writing access. Its practical advantage is real: a grieving beneficiary is not handed a very large check on the worst week of her life and can take time to decide. Two things must be understood, and disclosed. First, the account is an obligation of the INSURER, not a deposit at a bank; it is not a bank account and carries no federal deposit insurance, so the beneficiary is a general creditor of the insurance company for the balance. Second, the beneficiary retains full control and may draft the entire balance immediately, so the arrangement is a payment method rather than a restriction on access. The interest credited is taxable to the beneficiary even though the underlying death benefit was received income-tax-free.

Standard life insurance settlement options include:

1. A.Lump sum, interest only, fixed period, fixed amount, and life incomeCorrect - the standard payout options.
2. B.Only stock sharesProceeds are paid in money, not in securities. The insurer settles a claim in cash under whichever payout arrangement the beneficiary has selected.
3. C.Only monthly checks for 10 yearsThis takes one narrow variant and presents it as the entire list. A defined stream of payments is one arrangement among several, and its length is chosen rather than fixed at a single figure.
4. D.Only a lump sumA lump sum is genuinely one of the available arrangements, which is what makes this tempting. The word only is the flaw, since installment and income-based arrangements sit alongside it.

Why: The standard options are lump sum, interest only, fixed period, fixed amount, and life income.