In insurance terminology, what does a 'life settlement' refer to?

In insurance terminology, what does a 'life settlement' refer to?

• A. An insurance policy bought for investment
• B. Withdrawal of policy due to non-payment
• C. A transaction where a terminally ill person sells their policy
• D. A payout made after the policy matures

Answer: (C)

A 'life settlement' specifically refers to a transaction in which a terminally ill individual sells their life insurance policy to a third party for a lump sum payment. This typically occurs when the policyholder no longer wants or can afford to keep the policy, and they wish to obtain cash value from it while they are still alive. The third party then assumes the responsibility for paying the premiums and will collect the death benefit when the original policyholder passes away. This practice can provide financial relief or funding for medical expenses for those who are facing terminal illnesses, allowing them to access funds that would otherwise not be available until their death. The correct answer accurately encapsulates the essence of what a life settlement entails in the context of insurance terminology.

A 'life settlement' specifically refers to a transaction in which a terminally ill individual sells their life insurance policy to a third party for a lump sum payment. This typically occurs when the policyholder no longer wants or can afford to keep the policy, and they wish to obtain cash value from it while they are still alive. The third party then assumes the responsibility for paying the premiums and will collect the death benefit when the original policyholder passes away.

This practice can provide financial relief or funding for medical expenses for those who are facing terminal illnesses, allowing them to access funds that would otherwise not be available until their death. The correct answer accurately encapsulates the essence of what a life settlement entails in the context of insurance terminology.