A viatical settlement is

• A. the sale of a life insurance policy to a church.
• B. a pledge of a death benefit in exchange for a loan.
• C. the sale of a life insurance policy by a terminally ill insured.
• D. the sale of a life insurance policy by an older insured.

Answer: (C)

A viatical settlement involves a terminally ill insured selling an existing life insurance policy to a third party for a lump sum. The buyer becomes the policy owner, pays future premiums, and will receive the death benefit when the insured dies. This provides liquidity to someone with a short life expectancy and is distinct from simply borrowing against the policy or using the death benefit as collateral. It’s also different from a life settlement, which is the sale of a policy by an older insured who is not necessarily terminally ill.