Rhode Island Life Insurance Practice Exam

Which option represents a method of distributing a life insurance policy death benefit other than a lump-sum payment?

1. Rider

2. Settlement Option

3. Endowment

4. Term Option

The correct answer is: Settlement Option

A settlement option represents a method of distributing a life insurance policy death benefit other than a lump-sum payment. This approach allows the beneficiary to receive the death benefit in various forms, which can include installments over a specified period, an annuity that provides regular payments, or interest payments on the death benefit amount, among others. The flexibility offered by settlement options caters to the financial needs and preferences of the beneficiaries, ensuring that the death benefit can be utilized in a way that best supports their situation. Other methods given, such as riders, endowments, and term options, do not specifically relate to the distribution of death benefits but rather serve different functions within life insurance policies. Riders are additional benefits or provisions attached to the base policy that enhance coverage. An endowment pays out a sum either upon the death of the insured or at the end of a specified period if the insured survives, but it does not provide alternative distribution methods of a death benefit after the death occurs. Term options typically refer to policies that provide coverage for a specified term without cash value, and they do not address the distribution methods available for death benefits. Thus, the settlement option is distinct in its focus on varied benefit delivery.