Kentucky Life Insurance State Practice Exam

The term that accurately describes the sale of a life insurance policy by a terminally ill policyowner is a viatical settlement. A viatical settlement involves the sale of the policy to a third party for a lump sum payment that is less than the death benefit. The policyowner benefits from receiving immediate cash, which can be used for medical expenses, family support, or other financial needs while they are still alive.

Viatical settlements are specifically designed for individuals who are diagnosed with terminal illnesses, allowing them to access the death benefit of their policies ahead of time. The third party takes over the premium payments and becomes the beneficiary of the policy, receiving the full death benefit upon the policyowner's passing.

In contrast, a life settlement generally refers to the sale of a life insurance policy by an individual who is not necessarily terminally ill, but rather older or experiencing a change in financial needs. The key distinction lies in the terminal illness aspect, which specifically qualifies a settlement as a viatical settlement. Other terms like medical settlement and capital settlement do not pertain to life insurance or the selling of policies.