A widow receives $500,000 in life insurance proceeds and asks the insurer to hold the funds and send her only the monthly interest earned, preserving the principal for her children. She later changes her mind and requests the full $500,000. Which settlement option was she using, and is the principal withdrawal allowed?

Why this is the answer

The Interest Only settlement option has the insurer retain the full principal ($500,000) and pay only the interest earned each period. The principal is preserved for eventual distribution to secondary beneficiaries (here, her children). Critically, if the option is elected revocably, the beneficiary retains the right to withdraw all or part of the principal at any time — which is exactly what the widow did. Option B describes the Fixed Period option, which distributes principal plus interest over a set term with no early withdrawal. Option C misidentifies the option and the probate condition is fabricated. Option D misidentifies the option; life income converts proceeds to an annuity stream, typically irrevocable once annuitized. The TX outline §II.B lists all five settlement options as testable.