Question: A settlement option that would leave the proceeds of the insurance policy with the insurer and the insurer would pay interest to the beneficiary on an installment basis is called:

Answer: The interest only option leaves the proceeds with the insurer and pays the interest to the beneficiary on an installment basis.

The correct answer is: Interest only option

Question: All of the following are life insurance settlement options, EXCEPT:

Answer: There are four settlement options: interest only, fixed-period installments (period certain), fixed-amount installments and life income. An automatic premium loan is a policy loan provision.

The correct answer is: Automatic premium loan

Question: A fixed period option pays policy proceeds in equal installments over a period of months or years. Which of the following is NOT considered when determining the amount of the installment?

Answer: The relationship of the beneficiary to the insured is not considered when the amount of the installment is determined.

The correct answer is: The relationship of the beneficiary to the insured

Question: Which of the following settlements of a life insurance policy is taxable?

Answer: Life benefits paid to a beneficiary are generally tax-free. However, with an interest-only settlement, installment payments are taxable because they are 100% interest earned on the principal.

The correct answer is: Interest-only

Question: All of the following is true regarding lump-sum payment of life insurance policy proceeds, EXCEPT:

Answer: Life insurance proceeds received in a lump-sum distribution are not taxed.

The correct answer is: Distribution is taxed.

Question: All of the following are true regarding the fixed-amount installment life insurance settlement option, EXCEPT:

Answer: The larger the payment amount, the shorter time period payments will be received.

The correct answer is: The larger the payment amount, the longer time period payments will be received.

Question: Who may choose the settlement option for a life insurance policy?

Answer: The policyowner chooses the settlement option. If the policyowner has not chosen a settlement option, the beneficiary may select the settlement option.

The correct answer is: The policyowner and the beneficiary

Question: Of the following life insurance settlement options, which pays only the interest earned on the principal in periodic payments?

Answer: The interest-only settlement option invests the principal (the death benefit) and pays out the growth on the principal in installments to the beneficiary.

The correct answer is: Interest-only

Question: All of the following are true regarding the period certain life insurance settlement option, EXCEPT:

Answer: Longer payment periods result in lower payments.

The correct answer is: Shorter payment periods result in lower payments.

Question: Which settlement option pays the growth on the principal in installments?

Answer: The interest-only settlement option invests the principal (the death benefit) and pays out the growth on the principal in installments to the beneficiary.

The correct answer is: Interest-only