Colorado Life Producer License Practice Test

From what date must an insurer pay interest on the death benefit?

1. Date of policy issuance

2. Date of death

3. Date of claim submission

4. Date of beneficiary designation

The correct answer is: Date of death

An insurer is required to pay interest on the death benefit starting from the date of death. This reflects the principle that beneficiaries are entitled to receive not only the face amount of the policy but also the time value of that money from the moment the insured individual passes away. This provision ensures that beneficiaries are compensated for any delay in receiving the death benefit due to the insurer's processing time or other factors. In the context of life insurance, once the insured dies, the obligation of the insurer activates. The insurer may take some time to complete necessary administrative tasks, such as confirming the validity of the claim, but the interest reflects the ethical commitment to compensate beneficiaries fairly from the moment of loss. This is why the date of death is critical for determining when interest should start accruing on the death benefit.