Question 37

Lump-sum cash settlement is the automatic mode for life insurance proceeds.

In the absence of any other settlement method chosen, life insurance proceeds are automatically paid out as a lump-sum cash settlement to the beneficiary.

A) Extended term insurance

Extended term insurance is not the automatic mode for life insurance proceeds. This option refers to a method where the death benefit is used to purchase term insurance for a specified period, which is not the default option when no settlement method is selected.

B) Lump-sum cash settlement

Lump-sum cash settlement is the correct answer as it is the default method for disbursing life insurance proceeds. When a policyholder passes away and no other settlement option is specified, the beneficiary receives the full amount of the death benefit in cash.

C) Life income

Life income is an option where the proceeds are paid out as an annuity to the beneficiary over their lifetime. This is not the automatic mode unless specifically chosen by the policyholder, making it an incorrect option in this context.

D) Paid-up policy

A paid-up policy refers to a life insurance policy that does not require further premium payments because its cash value has accumulated enough to cover the cost of insurance. This is not related to the settlement of proceeds upon death and is not the default settlement method.

Conclusion

Lump-sum cash settlement is definitively the correct answer as it represents the standard practice for disbursing life insurance proceeds when no other method is selected. All other options fail to serve as the automatic mode, either involving additional conditions or not being applicable in the context of death benefit payout.