Which of the following statements about life settlement contracts is true?

When discussing life settlement contracts, it's important to understand how they function and the legal framework surrounding them. Life settlements involve policyholders selling their life insurance policies to third parties for a lump sum payment, typically worth more than the cash surrender value but less than the death benefit.

The correct assertion is that proceeds from a life settlement may be accessed by creditors. This means that if the policyholder has outstanding debts, creditors may have the right to claim a portion of the money received from the life settlement, as it can be considered an asset of the policyholder.

This stands in contrast to the other statements. For instance, selling a life settlement contract generally requires the consent of the original owner or policyholder, especially if the policy is still in force. Tax implications on life settlements can be complex, and while some aspects may be tax-exempt, there are also instances where they are subject to taxation, so saying they are tax-exempt in all scenarios is inaccurate. Additionally, life settlement contracts are not exclusively negotiated by the insurance company; they are typically negotiated between the policyholder, a broker, and the buying parties in the secondary market.

Understanding these factors is crucial for navigating the rules and implications of life settlement contracts effectively.