Arizona Life and Health Practice Exam

Which life insurance settlement option pays a stated monthly benefit until both principal and interest are exhausted?

1. Fixed amount installment option

2. Interest-only option

3. Life income option

4. Perpetuity option

The correct answer is: Fixed amount installment option

The correct answer is that the fixed amount installment option pays a stated monthly benefit until both principal and interest are exhausted. This settlement option allows the policyholder or beneficiary to choose a specific amount to be paid out on a regular basis, typically monthly. The payments continue until the total of the principal plus the accrued interest is depleted. This option is particularly appealing for individuals who prefer a predictable and structured income stream over time rather than receiving a lump sum. The payments can help manage expenses and provide financial security, reflecting a careful planning approach to their financial needs. The option is designed to offer a balance between having accessible funds while also ensuring that those funds last for as long as possible, based on the selected amount. In contrast, the interest-only option would only pay out the interest generated on the principal for a specified period, without touching the principal, which means it does not fulfill the same purpose as the fixed amount option. The life income option provides a stream of income for the lifetime of the insured, which does not involve a stated monthly benefit based on exhausting principal and interest. The perpetuity option, on the other hand, refers to an investment scenario where payments continue indefinitely without a scheduled depletion of principal, making it unrelated to typical life insurance settlement options