Texas Life Agent Practice Exam

Which settlement option might provide payments that exceed the proceeds of the policy and the interest earned?

1. Fixed period option

2. Life annuity

3. Interest only option

4. Deferred investment option

The correct answer is: Life annuity

The life annuity option stands out among the settlement choices for its ability to offer payments that can exceed the total proceeds of the policy along with any interest that may have been earned. When a policyholder selects the life annuity settlement option, they essentially agree to receive a stream of income for the rest of their life in exchange for the policy's cash value or death benefit. This option guarantees that payments will continue until the individual passes away, regardless of how long that might take. The critical feature of a life annuity is its structure, which can include various payout schedules—payment amounts are based on the life expectancy of the individual. Therefore, if the annuitant lives longer than average, they may receive total payments that surpass both the initial principal and the accumulated interest from the policy. This proficiently demonstrates how the life annuity provides a potential for greater financial benefit than merely returning the original policy proceeds. Other settlement options, while valuable, do not inherently carry this potential for exceeding initial amounts in the same manner. The fixed period option provides payments for a predetermined time, meaning the total payout is capped to the selected duration. The interest only option pays out just the interest generated on the policy proceeds, which will not exceed the original amount of the