New Jersey Life Producer Practice Exam

Which settlement option allows for payments in regular installments until the principal and interest are exhausted?

1. Lump-sum payment

2. Fixed-amount

3. Interest-only option

4. Life income option

The correct answer is: Fixed-amount

The fixed-amount settlement option allows for payments in regular installments until the principal and interest are completely exhausted. This means that the beneficiary will receive a predetermined amount of money at regular intervals, such as monthly or annually, until the total value of the policy, including accrued interest, has been disbursed. This method is particularly useful for beneficiaries who prefer a steady, predictable income over a specified period, allowing them to manage their finances effectively. The payments will continue until the total available funds run out, providing both structure and security to the recipient. Other options, while they may have their own merits, do not function in the same way. For instance, the lump-sum payment option disburses the entire amount at once, rather than in installments. The interest-only option pays only the interest earned on the principal amount, leaving the actual principal intact for further disbursement at a later time. Lastly, the life income option provides payments for the lifetime of the beneficiary, which does not necessarily equate to a method where the principal and interest are exhausted within a fixed timetable. This illustrates why the fixed-amount choice stands out for those seeking regular installment payments until funds are completely used up.