South Carolina Life and Health Practice Exam

Which settlement option allows the benefits to stay with the insurer while the beneficiary receives monthly payments?

1. Life income option

2. Interest only

3. Fixed period option

4. Cash payment option

The correct answer is: Interest only

The interest only settlement option allows the death benefit to remain with the insurance company while the beneficiary receives monthly payments. In this arrangement, the insurer holds onto the principal amount, which is the death benefit, and pays interest to the beneficiary based on that amount. This can provide more stable monthly income, allowing the beneficiary to receive a consistent cash flow over time without depleting the principal sum. Choosing this option can be particularly advantageous for beneficiaries who desire a steady income stream without taking the principal amount at once, which could be overwhelming or risky to manage. This option helps facilitate financial stability by allowing the insured funds to continue earning interest while the beneficiary receives regular payments. In contrast, the other options typically involve different methods for disbursing benefits directly or providing a lump sum to the beneficiary, rather than retaining the principal with the insurer.