New Jersey Life Producer Practice Exam

What happens to the proceeds of a policy if they are left with the insurer and earnings are sent to the beneficiary?

1. Guaranteed payouts

2. Accumulated interest

3. Interest-only option

4. Fixed payments

The correct answer is: Interest-only option

When the proceeds of a life insurance policy are left with the insurer and the earnings are sent to the beneficiary, this arrangement is referred to as the interest-only option. In this scenario, the insurer retains the principal amount of the death benefit while paying out the interest earned on that amount to the beneficiary. The beneficiary receives regular interest payments, but does not access the principal until a later date. This approach provides the beneficiary with the benefit of interest accumulation without the immediate need to manage a lump sum payment. It can be an advantageous option for beneficiaries who prefer to receive a steady stream of income or for those who may not be prepared to handle a large sum of money responsibly all at once.