In the fixed period option, how does the payout period affect the interest return?

In the fixed period option, how does the payout period affect the interest return?

• A. Longer payout periods yield lower interest
• B. Shorter payout periods yield higher interest
• C. Longer payout periods yield higher interest
• D. Payout period does not affect interest

Answer: (C)

In the fixed period option, the length of the payout period is significant because it directly influences how interest is credited to the policyholder's account. When the payout period is longer, the insurance company has a more extended time frame to invest the funds, which can lead to a greater potential for the accumulation of interest. During this time, the company can participate in various investment strategies that may yield higher returns over the long term. Conversely, shorter payout periods generally result in less interest accumulation since the funds are dispersed more quickly, providing the insurance company a shorter time to earn additional interest on those funds. Therefore, the correct understanding is that longer payout periods yield higher interest due to the extended duration of investment opportunities.

In the fixed period option, the length of the payout period is significant because it directly influences how interest is credited to the policyholder's account. When the payout period is longer, the insurance company has a more extended time frame to invest the funds, which can lead to a greater potential for the accumulation of interest. During this time, the company can participate in various investment strategies that may yield higher returns over the long term.

Conversely, shorter payout periods generally result in less interest accumulation since the funds are dispersed more quickly, providing the insurance company a shorter time to earn additional interest on those funds. Therefore, the correct understanding is that longer payout periods yield higher interest due to the extended duration of investment opportunities.