West Virginia State Life Insurance Practice Exam

Which settlement option in a life insurance policy pays a specified amount to an annuitant without any residual value to a beneficiary?

1. Life income

2. Interest only

3. Fixed period

4. Cash value

The correct answer is: Life income

The life income settlement option is designed to provide a guaranteed income stream to the annuitant for their lifetime, without any residual value being passed on to beneficiaries after the annuitant's death. This means that once the annuitant passes away, the payments will cease, and no further payouts will be available to anyone, including beneficiaries. This option is particularly suited for individuals who want to ensure a steady income during their lifetime and are less concerned about leaving an inheritance through the life insurance policy. It provides financial security to the annuitant but limits the financial benefit to others after the annuitant's death, aligning with the specific terminology of "no residual value." In contrast, other settlement options have different structures. For instance, the interest-only option allows the principal to remain intact while paying out interest, leaving a value for the beneficiary. The fixed period option pays out for a set duration and can provide benefits to the beneficiary if the annuitant dies before the end of that term. Cash value is not a settlement option at all but rather refers to the savings component of permanent life insurance that can be accessed or borrowed against.