New Jersey Life Producer Practice Exam

What is a characteristic of interest-only payment plans in life insurance?

1. Benefits are paid in full immediately

2. Payments are delayed for a set period

3. Only interest accumulates for a specified time

4. Premiums are reduced after a claim

The correct answer is: Only interest accumulates for a specified time

In interest-only payment plans within life insurance, the primary characteristic is that only the interest accumulates for a specified time. This means that during the initial phase of the policy, the insured party is not required to make full premium payments but rather pays only the interest on the amount due. This arrangement allows the policyholder to manage cash flow more effectively during the early stages of the insurance policy. The option regarding immediate payment of benefits relates to whole life or other types of policies where a death benefit is triggered, not specifically to interest-only payment plans. Similarly, delayed payments may refer to alternative policy structures, while the reduction of premiums after a claim does not pertain specifically to interest-only plans, as claims typically result in the payout of benefits rather than a change in premium obligations. Thus, the distinguishing feature of only having interest accumulating for a specified duration clearly defines this type of payment plan.