California Life and Health Insurance Practice Exam

What is the automatic mode of settlement for life insurance policy proceeds?

1. Accidental death benefit

2. Lump-sum

3. Installments for a fixed period

4. Life income option

The correct answer is: Lump-sum

The automatic mode of settlement for life insurance policy proceeds is the lump-sum option. This means that when a claim is made, the beneficiary receives the entire death benefit amount in one single payment. This method is preferred by many because it allows beneficiaries to have immediate access to the funds, providing financial security and flexibility to manage the proceeds according to their needs. Other settlement options, while available, require the policyholder or beneficiary to select them explicitly. For example, the accidental death benefit provides additional coverage if death results from an accident, which is not a standard settlement method. Options such as installments for a fixed period and life income options offer structured payment plans, but they are not automatically triggered. In contrast, the lump-sum payment represents a straightforward and efficient means for beneficiaries to receive policy proceeds without having to make a choice about the method of settlement.