Massachusetts Life Producer Practice Exam

Which of the following does NOT pertain to a life settlement transaction?

1. Selling a whole life policy

2. Converting term life coverage to whole life insurance

3. Transferring ownership of the policy

4. Receiving a cash amount for the policy

The correct answer is: Converting term life coverage to whole life insurance

A life settlement transaction involves the sale of an existing life insurance policy to a third party for a lump sum cash payment that is generally greater than the cash surrender value but less than the policy's death benefit. This typically applies to whole life policies and certain other types of permanent coverage, providing policyholders an option to monetize their life insurance. When we consider the choices, converting term life coverage to whole life insurance does not pertain to a life settlement transaction. This process involves changing the structure of a policy rather than selling it. Life settlements are focused on liquidating existing policies rather than modifying their terms. The other choices accurately reflect actions that are part of life settlement transactions: selling a whole life policy, transferring ownership of the policy, and receiving a cash amount for the policy all characterize key components of such transactions.