Arizona Life and Health Practice Exam

Which life insurance settlement option focuses on providing a stated monthly benefit until both the principal and interest are used up?

1. Life income settlement option

2. Fixed amount installment option

3. Interest-only option

4. Cash settlement option

The correct answer is: Fixed amount installment option

The fixed amount installment option is designed to pay a specific sum of money to the beneficiary on a regular monthly basis until the total amount, which includes both the principal and any interest earned, has been fully disbursed. This option is particularly beneficial for beneficiaries who prefer a steady, predictable income over a period of time rather than a lump sum payment. It allows the recipient to budget and manage their finances effectively, as they know exactly what to expect each month. In contrast, the life income settlement option guarantees a payment for the lifetime of the recipient, but it does not wrap up the principal and interest within a set timeframe. The interest-only option pays only the interest accrued on the policy face value for a specified period, leaving the principal intact, while the cash settlement option involves a lump sum payment that provides immediate access to the full policy value without any ongoing benefits. In summary, the fixed amount installment option uniquely combines both principal and interest payments over time, leading to its distinction among the settlement choices.