California Life-Only & Accident and Health AgentLife InsuranceEasy
A 30-year-old single parent wants to ensure their child will receive a steady income stream for their college education and living expenses if the parent passes away prematurely. The parent is looking for a payout option that guarantees payments for a specific period, regardless of whether the child is still alive. Which settlement option should the parent choose?
- AFixed Period Installments
- BLump Sum
- CLife Income
- DInterest Only
Show answer & explanationAnswer & explanation
Correct answer: A. Fixed Period Installments
Fixed Period Installments guarantee payments for a specified duration, ensuring the child receives a steady income stream for college and living expenses, even if the child were to pass away before the end of the period, the remaining payments would go to a contingent beneficiary.
Why the other options are wrong
- B. Lump Sum provides the entire death benefit at once, which may not ensure a steady income stream over time.
- C. Life Income provides payments for the beneficiary's lifetime, which is uncertain in duration and might not align with specific educational timing.
- D. Interest Only pays only the interest on the death benefit, leaving the principal untouched, which doesn't provide a steady income stream for expenses.
Fixed Period Installments
A life insurance settlement option where the death benefit is paid out in equal installments over a specified period of time.
- Principal and interest are liquidated over the chosen period.
- Payments are guaranteed for the entire period, regardless of beneficiary's survival.
- If the beneficiary dies, remaining payments go to a contingent beneficiary.
Memory trick: Lump Sum, Interest, Fixed Period, Life Income: How the death benefit flows.