What happens when a policy owner sells their life insurance policy in a viatical settlement?

A viatical settlement involves the sale of a life insurance policy by the policy owner, often due to terminal illness or financial need. In this transaction, the policy owner sells the policy to a third party for an immediate lump sum payment, which is typically less than the death benefit but more than the cash surrender value of the policy. This allows the policy owner to access funds while they are still alive, which can be particularly beneficial for covering medical expenses or other financial obligations.

In this context, obtaining a lump sum payment is the primary and most advantageous outcome for the policy owner, as they gain immediate access to capital. The lump sum payment can provide critical financial support during a difficult time or serve particular needs that the owner may have.

Other potential outcomes listed do not accurately describe the essential nature of a viatical settlement. For instance, receiving a reduced death benefit does not align with the nature of the sale, as the seller no longer holds the policy. Paying off premium dues isn't applicable in this scenario, since the seller typically receives cash from the settlement instead of making further payments. Lastly, transferring ownership back to the insurer contradicts the concept of a viatical settlement, as the policy ownership is transferred to a third party, not the insurer