If a terminally ill policyowner decides to sell their life insurance policy at a discount to support their family, what is this transaction called?

In this scenario, the transaction described is known as a viatical settlement. A viatical settlement allows terminally ill policyowners to sell their life insurance policies at a discounted rate to receive immediate cash, which can be crucial in providing financial support for their families during a challenging time. This type of transaction specifically caters to individuals with a terminal illness who may need immediate funds for medical care or other expenses.

It’s important to differentiate this from a life settlement, which also involves selling a life insurance policy but is typically used by individuals who are not necessarily terminally ill. A life settlement can be applied to those who are older or still healthy but want to liquidate their asset for cash purposes.

Policy surrender refers to the process of canceling a life insurance policy and receiving its cash value, but it does not involve selling the policy to a third party. An insurance exchange pertains to exchanging one insurance policy for another, which does not apply to the sale of a policy for immediate cash.

Thus, when looking at the details of the transaction where a terminally ill policyowner sells their policy at a discount, viatical settlement is the most accurate term that reflects the specific conditions and motivations of the policyowner.