Viatical Settlement: Selling a Life Policy Before Death (LLQP)

A viatical settlement is the sale of an existing life insurance policy by a policyholder — typically someone who is terminally or seriously ill — to a third party for a lump-sum cash payment that is less than the death benefit but more than the cash surrender value.

The buyer becomes the new owner and beneficiary, keeps paying the premiums, and collects the full death benefit when the insured dies. The seller gets cash now, while it's needed for care or quality of life.

Why it matters on the LLQP exam

Viatical settlements test your understanding of ownership and assignment — the principle that a life insurance policy is property that can be sold, provided the buyer is permitted to hold it and provincial law allows the transaction.

Key exam points:

• Why it exists — a terminally ill insured may have no dependants left to protect, or needs funds for treatment; surrendering to the insurer would yield far less.
• Insurable interest is NOT required at purchase of the settlement — the buyer relies on the insurable interest that existed when the policy was originally issued. This is why regulators watch the market closely: buying policies purely as a wager on death is what the insurable interest rule exists to prevent.
• Regulation varies — some provinces restrict or prohibit viatical settlement transactions; in Quebec, for example, selling a policy to an investor is not permitted in the same way. Know that agents must check provincial rules before facilitating one.
• Alternatives the exam prefers — policy loans, cash surrender, or using a policy with an accelerated death benefit rider often solve the same problem without selling.

Example question

In a viatical settlement, the purchaser of the policy:

• Must demonstrate insurable interest in the insured's life
• Receives a lump sum when the policy is surrendered
• Becomes the owner and beneficiary and collects the death benefit
• Shares the death benefit with the original beneficiaries

Answer: C — the buyer steps fully into ownership and beneficiary status, profiting at the insured's death.

Related concepts: insurable interest and policy lapse, all part of the life insurance hub.