What does 'life settlement' refer to?

'Life settlement' refers to the sale of a life insurance policy to a third party for a sum that is greater than the cash surrender value but less than the death benefit. This transaction allows policyholders, often seniors, to convert their life insurance policy into immediate cash. It is particularly advantageous for individuals who no longer need their life insurance or who are facing financial difficulty.

In life settlements, the buyer takes over the premium payments and ultimately receives the death benefit when the insured person passes away. This process can provide the seller with financial relief, as it offers a way to access funds tied up in a policy that they would otherwise not utilize.

The other options do not accurately represent what a life settlement is. The expiration of a life insurance policy refers to when coverage ends without benefit to the policyholder, policy riders for critical illness pertain to additional coverage options within a policy, and tax strategies for life insurance involve different financial planning elements unrelated to the concept of selling the policy itself.