What are viatical settlements as per Illinois law?

Viatical settlements, as recognized by Illinois law, involve the process where a policyholder sells their life insurance policy to a third party in exchange for a cash payment. This transaction typically occurs when the policyholder is diagnosed with a terminal illness or has a shortened life expectancy. By converting the life insurance policy into immediate cash, the policyholder can address pressing financial needs, such as medical expenses or other urgent costs.

The key aspect of this arrangement is the direct transfer of ownership of the life insurance policy from the original policyholder to the buyer in exchange for a lump sum payment. This allows the buyer to receive the death benefit when the insured individual passes away. This definition aligns with statutory guidelines and regulations governing viatical settlements in Illinois, aiming to provide clarity and protection for all parties involved in the transaction.

The other options do not accurately capture the essence of a viatical settlement; for instance, payments made to beneficiaries upon the policyholder's death pertain to the standard operation of life insurance policies, purchasing new insurance involves acquiring fresh coverage rather than selling an existing policy, and replacement of one policy with another typically concerns switching insurance providers or policies, not the sale of the policy itself for immediate cash.