Final answer:
The statement regarding policy proceeds being retained by the insurance company and only the interest being paid to beneficiaries is false, as this is not the standard practice in insurance policies. Insurance is designed to collect premiums from policyholders and pay out claims, while also covering costs and ensuring profit, according to the fundamental law of insurance. The correct option is 2.
Step-by-step explanation:
The statement that policy proceeds are retained by the insurance company and only the interest is paid to the beneficiary can be false. Typically, when an insurance policy's terms are fulfilled, such as upon the death of the insured, the policy proceeds are paid out to the beneficiaries in a lump sum or through a settlement option that provides regular payments.
However, some policies do allow for an arrangement where the proceeds are retained by the insurance company, and only the interest earned is paid out. This would be specified in the policy and is not a universal practice.
Insurance serves as a method of financial protection wherein policyholders make regular payments to an insurance entity. The company then pays claims to those insured members who incur losses covered by the policy. A key concept in insurance is balancing premiums collected with the payments for claims, operational costs, and ensuring profit margins, which is a fundamental law of insurance.
Pension insurance is another type of insurance where the Pension Benefit Guarantee Corporation serves to protect retired employees' pensions in the case of their employer's bankruptcy.