In a life settlement, what amount does the policyholder receive for their life insurance policy?

In a life settlement, the policyholder receives an amount less than the death benefit of their life insurance policy. This transaction typically occurs when an individual decides to sell their life insurance policy to a third party for a lump sum payout. The key factor is that purchasing a life insurance policy at a premium that is higher than its current cash surrender value often results in a settlement amount that is lower than the policy's face value or death benefit.

Life settlements are negotiated based on various factors, including the policyholder's age, health status, and the life expectancy of the insured person. While the amount received is indeed less than the death benefit, it can be significantly more than what the policyholder would obtain through a cash surrender. This option can provide financial relief to those needing immediate cash while still offering a value greater than just surrendering the policy.

The other potential answers, which suggest the payout would be equal to or greater than the death benefit or that no payout is received, do not accurately reflect how life settlements typically function. In practical scenarios, policyholders are motivated by a need for cash rather than the hope of receiving an amount equal to or greater than what their beneficiaries would receive in the event of death.