For minor beneficiaries within 2 years of the age of majority, the insurer can pay interest only until majority. The insurer can then pay the full proceeds.

• A. I only
• B. II only
• C. Both I and II
• D. Neither I nor II

Answer: (C)

When a beneficiary is a minor, the insured party’s proceeds are often handled through a settlement arrangement that protects the minor and fits with fiduciary norms. A common approach for minors who are within two years of reaching the age of majority is to pay only the interest on the policy proceeds to the minor during minority. Then, when the beneficiary reaches the age of majority, the full principal, i.e., the remaining proceeds, can be paid to them. This structure prevents giving a lump sum to a young person who may not be able to manage it responsibly, while still ensuring the beneficiary ultimately receives the entire amount.

In practice, this arrangement may be implemented through a trust or custodian setup, but the essential idea is that payments to the minor occur as interest-only until majority, followed by full payment at that time. That’s why both elements described are correct.