What happens to the death benefit of a life insurance policy upon the insured's death?

The correct answer is that the death benefit of a life insurance policy can be paid in multiple payment options. This is significant because policyholders often have flexibility in how their beneficiaries receive the funds following the insured's death. These options can include a lump sum payment, which provides the entire benefit at once, or structured payments over time, which might help beneficiaries manage their finances more effectively.

This flexibility allows the beneficiaries to choose a payment method that best suits their financial needs and current circumstances, allowing for better long-term financial planning and support during a challenging time.

The other scenarios presented are not applicable in the context of typical life insurance policies. Benefits do not have to be restricted to being paid only to the estate, nor do they automatically incur tax deductions upon payout, given that death benefits are generally not taxable as income to the beneficiaries. Moreover, the assertion that the benefit is immediately forfeited is incorrect, as the purpose of life insurance is to provide financial security through these death benefits.