Life settlements are commonly used for what purpose?

Life settlements are financial transactions where policyholders sell their life insurance policies to a third party for a lump sum cash payment that is often greater than the cash surrender value but less than the death benefit. The primary purpose of life settlements is to provide policyholders with immediate cash that they can use for various financial needs, which can include paying medical expenses. This option reflects the reality that many individuals choose to sell their life insurance policies when they find themselves in need of funds, particularly for costly healthcare treatments or other essential expenses.

While other options may suggest potential uses of the funds, they do not directly relate to the main purpose of life settlements. Buying new life insurance policies may not be a primary motivation for engaging in a life settlement, as the intent behind selling is usually to access funds rather than to purchase additional coverage. Funding retirement accounts might be an indirect consequence of receiving cash from a life settlement, but it is not the primary reason individuals opt for this financial strategy. Selling unused insurance coverage, similar to a life settlement, might be an option, but again, this does not encompass the essence of why individuals actively pursue life settlements. Engaging in a life settlement primarily focuses on addressing immediate financial needs, making the choice to pay medical expenses the most aligned with