With the interest only settlement option, what happens to the policy's death benefit?

The interest only settlement option allows the insurance company to retain the policy's death benefit while providing the beneficiary with only the interest earned on that amount. This means that the principal amount of the death benefit remains with the insurer, and the beneficiary will receive periodic interest payments. This option is often chosen when the beneficiary may not need a lump sum immediately and would prefer to receive interest income over time.

In this scenario, the principal death benefit is not directly accessible to the beneficiary; instead, it's used by the insurance company to generate interest, which is paid out to the beneficiary. This option can be beneficial for certain beneficiaries, providing regular income while the larger amount is preserved.