In a life settlement, what does the policyowner receive?

In a life settlement, the policyowner receives an amount that is generally less than the policy's death benefit. This transaction occurs when the policyowner decides to sell their life insurance policy to a third party for a lump sum payment. The amount received is typically determined through an assessment that takes into account factors such as the insured's life expectancy, the policy's face value, premium obligations, and benefits.

The policyowner opts for this arrangement often because they might need immediate cash for various reasons, such as medical expenses or financial needs, and it offers a better option than surrendering the policy for its cash value, which is usually lower than the death benefit. In essence, the life settlement provides a life insurance policy's owner an opportunity to obtain liquidity without having to wait for the death of the insured, although at a price less than the full death benefit.

The other options either suggest that the policyowner receives an amount equal to or the full cash value of the policy, both of which are not typical outcomes in a life settlement. A life settlement transaction is about finding a suitable compromise between cash now and the future death benefit.