How might a life settlement be financially beneficial for a policyholder?

A life settlement can be financially beneficial for a policyholder primarily because it offers an immediate cash payment that exceeds the policy's cash surrender value. When a policyholder enters into a life settlement, they sell their life insurance policy to a third party for a lump sum payment. This payout is typically higher than what the policyholder would receive if they chose to surrender the policy for its cash value, which is often much lower due to factors such as age and health at the time of surrender.

This immediate cash can provide significant financial relief, allowing the policyholder to use the funds for various needs or investments without having to wait for the policy to pay out upon death. Additionally, it allows policyholders who may no longer need or afford the policy to convert it into liquid capital, effectively tapping into an asset that would otherwise remain inactive. This financial strategy can be particularly valuable for seniors or individuals facing medical expenses as it can aid in covering unexpected costs or improving quality of life in later years.