South Carolina Life Insurance Practice Exam

If a policy owner wants to ensure a portion of the life policy proceeds is paid annually to a spouse upon death, which settlement option should they choose?

1. Interest Only Option

2. Life Income Option

3. Fixed Amount Option

4. Life with Period Certain Option

The correct answer is: Interest Only Option

Choosing the interest only option as a settlement method after the death of the insured allows the policy proceeds to be held by the insurance company while earning interest. The beneficiaries, such as a spouse, will then receive this interest as a regular annual payment. However, they will not receive any of the principal amount of the policy proceeds until a later date or under specific terms. This option can provide ongoing income but does not guarantee that the beneficiary will receive the principal amount over a set period or under a structured plan. In contrast, the life income option would pay the beneficiary a guaranteed income for life but would cease apportioning any payments after their death. The fixed amount option allows for consistent payments of a predetermined amount until the proceeds are exhausted, but does not tie payments to the life of the beneficiary. The life with period certain option is structured to pay income for the lifetime of the beneficiary but guarantees payments for a specified minimum period. Each of these options serves different financial needs, but for ensuring that a spouse receives annual payments while potentially leaving the principal amount intact, the interest only option aligns best with that goal.