What is a life insurance settlement?

A life insurance settlement refers to the process where a policyholder sells their life insurance policy to a third party for a lump sum of cash. This option is significant because it provides policyholders an opportunity to receive immediate financial assistance rather than waiting for the policy's death benefit to be paid out upon their death. The sale can be beneficial for those who may no longer need the insurance, cannot afford the premiums, or require funds for urgent financial needs such as medical expenses.

In this context, the focus on the financial transaction illustrates how the policyholder can liquidate their asset (the life insurance policy) for cash, which can be used for various purposes. This practice is often referred to as a life settlement and is an important aspect of the life insurance market, providing flexibility and options for policyholders.

The other options describe concepts that do not accurately represent a life insurance settlement. Cancelling a policy before its term or investing benefits does not involve the transaction nature and immediate liquidity that a life insurance settlement entails, and an endowment policy relates to a specific insurance product that pays out at maturity rather than being associated with selling a policy for cash.