In life insurance, how proceeds are paid to the designated beneficiaries. Most
life insurance policies provide for payment in a lump sum. The four most common
alternative settlement approaches are: the interest option, under which the
insurer holds the proceeds and pays interest to the beneficiary until such time
as the beneficiary withdraws the principal; the fixed period option, under
which the future value of the proceeds is calculated and paid in installments
for a specified number of years; the fixed amount option, under which a fixed
dollar amount is paid in periodic installments until such time as the principal
and interest are exhausted; and the life income option, under which a
stipulated amount is paid periodically to the beneficiary throughout his or her
life.