A viatical settlement involves a life insurance policyowner selling their insurance policy to a third party for an amount that is typically more than the policy's cash value but less than its full face amount. Here’s a detailed breakdown of the options provided and why Option C is correct:
1. A. A return of paid premiums only:
- This is not accurate. The policyowner would have the return of paid premiums only if they canceled their policy, which is different from entering into a viatical settlement.
2. B. The policy's cash value:
- This is incorrect because the policyowner gets more than just the cash value of the policy when entering into a viatical settlement. The cash value is typically what the policy is worth if surrendered to the insurance company, not sold to another party.
3. C. A percentage of the face amount:
- This is the correct answer. In a viatical settlement, the policyowner receives a percentage of the face amount of the policy. This percentage is higher than the cash value but less than the full face amount.
4. D. The full face amount of the policy:
- This is not accurate either. The full face amount of the policy is paid out to the beneficiaries upon the death of the insured, not to the policyowner during a viatical settlement.
In conclusion, when a life insurance policyowner enters into a viatical settlement, they receive a percentage of the face amount of the policy, which is more than the cash value but less than the full face amount. Therefore, the correct answer is:
C. A percentage of the face amount.
