The sale of an existing life insurance policy by the policyowner to finance terminal illness costs is known as what?

The process of selling an existing life insurance policy to cover the costs associated with a terminal illness is referred to as a life settlement. In a life settlement, the policyowner receives a cash payout that is typically greater than the cash surrender value of the policy but less than the death benefit. This arrangement allows the policyowner to access needed funds for medical expenses or other needs before the policy's maturity.

Life settlements can provide a financial solution for individuals facing high medical costs due to terminal illness, reflecting the increasing recognition of the financial value that can be derived from life insurance policies. This differs fundamentally from concepts such as life loans, where a policy is used as collateral for a loan, life assignment, which involves transferring ownership of the policy but not selling it, and life borrowing, which typically pertains to taking out loans against the policy without selling it. Understanding these distinctions is key when considering the financial options available to policyowners in difficult circumstances.