What is a 'viatical settlement'?

Question: What is a 'viatical settlement'?

Answer options:

• The standard payment of a death benefit to a beneficiary. ✅ The sale of a life insurance policy by a terminally ill person to a third party for a lump-sum payment.
• A loan taken from a policy's cash value.
• The final dividend paid on a participating whole life policy.

Correct answer: The sale of a life insurance policy by a terminally ill person to a third party for a lump-sum payment.

Explanation: A viatical settlement is an arrangement where a person with a terminal illness sells their life insurance policy to a third party for more than its cash surrender value but less than its net death benefit. This provides the seller with immediate cash.