What term refers to a financial transaction in which the owner of a life insurance policy sells the policy to a third party for compensation, usually cash?

What term refers to a financial transaction in which the owner of a life insurance policy sells the policy to a third party for compensation, usually cash?

• A. Bequests
• B. Life settlement
• C. Education funds
• D. Retirement fund

Answer: (B)

Life settlement is the transaction in which the owner of a life insurance policy sells the policy to a third party for compensation, usually cash. Here’s how it works: the owner transfers ownership and decision-making rights to the buyer, who then becomes responsible for continuing any necessary premium payments. When the insured passes away, the buyer receives the death benefit. This option provides immediate liquidity for the policy owner, often appealing if they no longer need the policy, can’t afford the premiums, or want to use the cash for other needs. The amount paid to the seller is typically more than the policy’s cash surrender value but depends on factors like the insured’s health and expected longevity, which influence the buyer’s potential return. Related terms describe other financial concepts—bequests are gifts made via a will after death, education funds are savings vehicles for education, and retirement funds are savings for retirement—so a life settlement specifically describes selling the policy to a third party for cash now.

Life settlement is the transaction in which the owner of a life insurance policy sells the policy to a third party for compensation, usually cash. Here’s how it works: the owner transfers ownership and decision-making rights to the buyer, who then becomes responsible for continuing any necessary premium payments. When the insured passes away, the buyer receives the death benefit. This option provides immediate liquidity for the policy owner, often appealing if they no longer need the policy, can’t afford the premiums, or want to use the cash for other needs. The amount paid to the seller is typically more than the policy’s cash surrender value but depends on factors like the insured’s health and expected longevity, which influence the buyer’s potential return. Related terms describe other financial concepts—bequests are gifts made via a will after death, education funds are savings vehicles for education, and retirement funds are savings for retirement—so a life settlement specifically describes selling the policy to a third party for cash now.