What is the primary feature of a viatical settlement?

• A. Lump-sum payout on death
• B. Reduced death benefit prepayment
• C. Premium financing
• D. Tax-advantaged investments

Answer: (B)

Viatical settlements are about turning a life insurance policy into immediate cash by selling it to a third party. The buyer pays a lump sum now and becomes the policy owner and beneficiary, so they’ll receive the death benefit when the insured dies. The primary feature is that this results in a prepayment of part of the policy’s value—the insured gets cash now, and the death benefit is effectively paid to the buyer later.

That’s why this choice is the best: it captures the idea of receiving a lump sum before death in exchange for transferring ownership of the policy and the right to the future death benefit. The other options describe aspects that aren’t the defining characteristic of viatical settlements (death benefit payout at death, premium financing, or tax-advantaged investments).