PSI Life Exam Practice Test 2026 – Complete Preparation Resource

The correct answer, Extended Term, is not a settlement option for life insurance policies. In the context of life insurance, settlement options refer to the different methods by which the death benefit can be paid out to beneficiaries. These options generally allow beneficiaries to receive the benefits in a manner that best suits their financial needs.

Cash payment allows beneficiaries to receive the entire death benefit as a lump sum immediately upon the insured's death. An annuity payment option spreads the death benefit over a period of time, providing a steady income stream to the beneficiaries. A settlement plan typically outlines specific options or terms available to beneficiaries regarding how they wish to receive the death benefit, which could include other arrangements like life income or interest options.

Extended term, on the other hand, is a non-forfeiture option related to policy loans or the cessation of premium payments, wherein the insured can convert their policy's cash value into term insurance for a specified period instead of a method of settling the death benefit. This choice does not pertain to how benefits are paid out to beneficiaries after the insured passes away. Therefore, Extended Term cannot be classified as a settlement option.