Life & Health Insurance Exam (National Portion)Policy Provisions, Options, and RidersMedium
A life insurance policy states that the insurer will pay the death benefit to the beneficiary in the form of equal installments for a period of 20 years, regardless of how long the beneficiary lives. This is an example of which settlement option?
- ALife Income Option
- BFixed Period Option
- CInterest Only Option
- DFixed Amount Option
Show answer & explanationAnswer & explanation
Correct answer: B. Fixed Period Option
The Fixed Period Option (also known as Installment Option for a Fixed Period) pays the death benefit in equal installments over a specified number of years. The amount of each installment is determined by the death benefit, the chosen period, and an assumed interest rate.
Why the other options are wrong
- A. Life Income options pay for the life of the beneficiary, not a fixed period.
- C. The Interest Only Option leaves the principal with the insurer and only pays interest to the beneficiary.
- D. The Fixed Amount Option pays a specific dollar amount per installment until the funds are exhausted, regardless of how long that takes.
Fixed Period Option (Settlement)
A life insurance settlement option where the death benefit is paid out in equal installments over a specified period of time, chosen by the policyowner or beneficiary, until the entire principal and interest are exhausted.
- Installments paid for a fixed number of years.
- Total payout includes principal and interest.
- Amount of each installment depends on principal, period, and interest.
- If beneficiary dies, remaining payments go to their estate or contingent beneficiary.
Memory trick: LIFE: Lump, Installments, Fixed, or Interest.