What does a "life settlement" entail?

A "life settlement" refers to the process where the owner of a life insurance policy sells the policy to a third party for a lump sum cash payment that is typically less than the policy's death benefit. This transaction allows the policyholder to access funds while still alive, which can be advantageous if they no longer need the insurance or can no longer afford the premiums.

The buyer is often a financial investor or a company that will then take over the premium payments and ultimately collect the death benefit when the insured passes away. This arrangement can provide financial relief to the policyholder, making it an appealing option for those facing financial difficulties or wishing to liquidate an asset they no longer require.

The other options describe different financial concepts but do not align with the definition of a life settlement. For instance, converting a policy into a loan involves borrowing against its cash value rather than selling it. A transfer of ownership without any exchange of money is not a sale but rather a mere assignment of the policy. Finally, offering the policy as collateral for a mortgage involves a secured loan situation rather than a sale, which is distinct from the process of a life settlement.