Ohio Insurance Laws and Regulations Practice Exam

Terminally-ill life insurance policy owners may sell their policy at a discount to a third party. What is this type of agreement called?

1. Life settlement

2. Viatical settlement

3. Policy loan

4. Annuity conversion

The correct answer is: Viatical settlement

A life settlement is a type of agreement where a policy owner sells their life insurance policy to a third party at a discount. This allows the policy owner to receive a lump sum of money instead of continued payments from the insurance company. Option A is incorrect because a life settlement specifically refers to agreements for terminally-ill individuals. This is in contrast with viatical settlements which are for individuals with chronic or life-threatening conditions. Option C, policy loans, refer to borrowing money from a life insurance policy and does not involve selling the policy. Option D, annuity conversion, refers to converting a lump sum of money into a series of payments over a longer period of time and is not related to life insurance policy agreements.