Which scenario illustrates a settlement option in insurance?

In the context of insurance, a settlement option refers to the various ways in which an insurer can pay out benefits to the policyholder or beneficiaries upon a claim, such as a death benefit. The scenario that illustrates a settlement option is when the face amount at death is used to fund an annuity.

This is pertinent because funding an annuity with the death benefit allows for a structured payout over time, rather than a one-time lump-sum payment. This can provide a steady income stream to the beneficiary, which may be beneficial for financial planning purposes.

The other scenarios mentioned don't fit the definition of a settlement option. Refunding premiums after a claim does not pertain to how benefits are distributed following a claim. Choosing between monthly or lump-sum payments generally relates to how a policyholder pays their premiums rather than how claims are settled. Deferring payment until age 65 involves delaying access to benefits rather than presenting options for their distribution, thus it does not represent a settlement choice.