Which arrangement involves selling a life insurance policy to a third party for cash, with the insured not necessarily terminally ill?

• A. Viatical settlement
• B. Life settlement
• C. Accelerated benefits
• D. Policy loan settlement

Answer: (B)

Selling a life insurance policy to a third party for cash when the insured is not required to be terminally ill is a life settlement. In this arrangement, the policyowner transfers ownership and the rights to the death benefit to an investor or another buyer in exchange for a lump-sum cash payout. The buyer then becomes the new owner and is responsible for paying future premiums; when the insured passes away, the buyer collects the death benefit. This differs from a viatical settlement, which specifically involves terminally ill individuals or those with a short life expectancy. Accelerated benefits involve accessing part of the death benefit while the insured is still alive through a rider—no sale of the policy to a third party. A policy loan settlement isn’t the sale of the policy; it refers to borrowing against the policy’s cash value and not transferring ownership.