Chartered Life Underwriter Exam 2025 – 400 Free Practice Questions to Pass the Exam

A life settlement refers to a financial transaction in which a policyholder sells their existing life insurance policy to a third party for a lump sum payment. The buyer of the policy then becomes responsible for paying the future premiums and will receive the death benefit when the insured individual passes away. This option is often pursued by individuals who no longer need or can afford their life insurance coverage, providing them with immediate capital that can be utilized for various financial needs or investments.

In contrast, the other options describe different concepts unrelated to life settlements. For instance, a type of insurance policy that covers funeral expenses typically refers to a burial insurance policy, rather than a life settlement. The mention of dividends pertains to certain types of insurance policies, such as whole life insurance, which can provide policyholders with dividends based on the company's performance; this does not relate to the selling of the policy. Similarly, a form of investment in life insurance companies refers to investing in the stock of such companies or other financial products, rather than the transaction represented by a life settlement. Understanding these distinctions helps clarify why a life settlement specifically refers to the sale of a life insurance policy.