A terminally ill policy owner selling their life insurance policy at a discount to a third party is referred to as what type of agreement?

A terminally ill policy owner selling their life insurance policy at a discount to a third party is known as a life settlement. In this type of arrangement, the policy owner receives a lump sum payment that is greater than the cash surrender value of the policy but less than the death benefit. This allows the policy owner to access funds while they are still living, which can be particularly beneficial for meeting medical expenses or other financial needs during difficult times.

Life settlements are typically facilitated by a third-party investor, which distinguishes them from other options. The concept embraces the idea that individuals in terminal situations may gain financial relief through the sale of their policy. This practice is heavily regulated to ensure that the policy owner is well-informed and protected during the transaction. The other terms mentioned, such as life annuity, life option, and life exchange, do not accurately capture this specific financial arrangement.