Interest Only Options Of Life Insurance Contracts

Under the interest only option, all or part of the proceeds are left with the insurer, which pays the beneficiary either a guaranteed rate of interest or higher. The policyholder may permit the beneficiary to withdraw all or part of the proceeds at any particular time or may not permit him to withdraw them at all. In the latter case, the proceeds usually would be left to a secondary beneficiary or to the primary beneficiary’s estate upon his death. 

The interest only option is often used when it is desirable to defer payment of the proceeds. For example, estate clearance costs may not have to be paid immediately upon the death of the insured. In addition, the widow may not need the proceeds until her Social Security dependency benefits end.