Agreements by terminally ill persons to sell their life insurance policies at a discount to pay medical expenses are called:

• A. Annuities
• B. Viatical settlements
• C. Beneficiary designations
• D. Policy loans

Answer: (B)

Viatical settlements describe the sale of a life insurance policy by a terminally ill person for immediate cash to cover medical expenses. In this arrangement, the policy owner transfers ownership and the right to the death benefit to a third party in exchange for a lump sum that is typically less than the policy’s full death benefit. The buyer then takes over premium payments and, when the insured dies, collects the death benefit. This provides liquidity for medical costs when time is limited.

This differs from an annuity, which is a contract that provides regular payments to the holder and does not involve selling a life policy. Beneficiary designations merely name who will receive the death benefit after death and do not involve transferring ownership. Policy loans are loans taken against a policy’s cash value and do not transfer ownership or the death benefit to another party.