In a life settlement, the policyowner sells a life policy to a third party for more than cash surrender value but less than death benefit, with no requirement for terminal illness. Which statement is accurate?

In a life settlement, the policyowner sells a life policy to a third party for more than cash surrender value but less than death benefit, with no requirement for terminal illness. Which statement is accurate?

• A. The sale is treated as a loan against the policy
• B. The sale to a third party for more than cash surrender value but less than death benefit
• C. The sale requires terminal illness
• D. The sale is not permitted under any circumstances

Answer: (B)

In a life settlement, a policyowner sells a life insurance policy to a third party for a price that is above the cash surrender value but below the death benefit, and there is no requirement for the insured to have a terminal illness. This describes the typical structure and pricing of a life settlement: the buyer becomes the policy owner and will receive the death benefit when the insured passes away, while the seller receives cash now that is more than what the insurer would pay to surrender the policy but less than the eventual death benefit. The other statements aren’t accurate for a life settlement. It isn’t treated as a loan against the policy—it's a sale of ownership rights, not a loan that must be repaid. Terminal illness is not required—that requirement distinguishes life settlements from viatical settlements. And life settlements are permitted in jurisdictions where regulation allows them, provided all rules are followed.

In a life settlement, a policyowner sells a life insurance policy to a third party for a price that is above the cash surrender value but below the death benefit, and there is no requirement for the insured to have a terminal illness. This describes the typical structure and pricing of a life settlement: the buyer becomes the policy owner and will receive the death benefit when the insured passes away, while the seller receives cash now that is more than what the insurer would pay to surrender the policy but less than the eventual death benefit.

The other statements aren’t accurate for a life settlement. It isn’t treated as a loan against the policy—it's a sale of ownership rights, not a loan that must be repaid. Terminal illness is not required—that requirement distinguishes life settlements from viatical settlements. And life settlements are permitted in jurisdictions where regulation allows them, provided all rules are followed.