What is meant by "life settlement"?

A life settlement refers to the transaction where an individual sells their life insurance policy to a third party for an amount that is less than the policy's face value but more than its cash surrender value. This allows the policyholder, often an elderly individual, to receive immediate cash, which can be useful for various financial needs, such as covering medical expenses or improving quality of life in retirement.

This transaction benefits both parties: the seller obtains liquidity from a policy they may no longer need or can no longer afford, while the buyer stands to gain from the potential death benefit when the insured individual passes away.

The other options misrepresent different financial concepts. Investing in life insurance stocks pertains to equity investment rather than insurance policy sales. The provision allowing surrender for full value corresponds to a cash surrender value option in life insurance policies but does not involve selling the policy to another party. The description of a life insurance type providing cash benefits at retirement identifies a different insurance product, typically known as whole or universal life insurance, rather than a life settlement transaction.