Washington Life Producer Practice Exam

What is the primary feature of a viatical settlement?

1. Increased death benefit

2. Reduced death benefit prepayment

3. Permanent insurance coverage

4. Beneficiary designation control

The correct answer is: Reduced death benefit prepayment

A viatical settlement is primarily characterized by its provision for the policyholder to sell their life insurance policy to a third party for a lump sum payment that is less than the policy’s death benefit. This transaction allows individuals, particularly those with terminal illnesses, to access funds to cover medical expenses or make other necessary life decisions before their death. The cash received from the viatical settlement is typically considered a reduced prepayment of the death benefit, as the third party will then receive the full death benefit upon the insured's passing. This unique feature distinguishes viatical settlements from other options. For instance, the increased death benefit option would imply additional financial gain from the policy, which contradicts the nature of a viatical settlement that provides immediate cash rather than an increased payout. Permanent insurance coverage also does not apply, as viatical settlements do not pertain to how long insurance lasts; they are instead about liquidating the policy for immediate funds. Lastly, beneficiary designation control does not align with a viatical settlement, as the policy is sold, thus transferring the beneficiary rights to the purchaser of the policy. Overall, understanding the characteristics of a viatical settlement highlights its primary feature as reduced death benefit prepayment, allowing the policy