What happens in the interest only option?

In the interest-only option, the insurer retains the policy proceeds and pays interest on those proceeds to the beneficiary at regular intervals. This arrangement allows the principal amount to remain with the insurer, which means the beneficiary does not receive the full death benefit immediately. Instead, they receive periodic interest payments, which can provide a steady income stream while the principal remains invested by the insurer. This can be beneficial for beneficiaries who may not need a large lump sum at once and prefer to manage their finances more gradually.

The nature of this option makes it distinct from other payment methods. For instance, receiving the full policy proceeds immediately or in a lump sum would result in the beneficiary having immediate access to the entire death benefit, which the interest-only option does not allow. On the other hand, a fixed amount payment until exhausted involves drawing down the total proceeds over time, which differs from simply receiving interest on retained funds. Thus, the key characteristic of the interest-only option is that it emphasizes ongoing income through interest rather than immediate access to the total death benefit.