Massachusetts Life Producer Practice Exam

In a life settlement, what does the policyowner receive?

1. An amount equal to the policy's face value

2. An amount less than the policy's death benefit

3. Full value of premiums paid

4. Nothing until the insured passes away

The correct answer is: An amount less than the policy's death benefit

In a life settlement, the policyowner receives an amount that is typically less than the policy's death benefit. This arrangement allows the policyowner to sell their life insurance policy to a third party for a lump sum cash payment that reflects the current market value of the policy. The cash payment is usually based on factors such as the insured's life expectancy, the policy's face value, premium costs, and other market considerations. Therefore, the amount received in a life settlement generally serves as a financial option for policyowners who no longer need their coverage, prefer immediate liquidity, or want to derive some value from their policy before the insured passes away.