Montana State Life Insurance Practice Exam

What must the policyholder do before entering into a viatical settlement?

1. Submit a financial report.

2. Obtain a recommendation from an insurance agent.

3. Sign a document acknowledging terminal illness.

4. Sell other assets.

The correct answer is: Sign a document acknowledging terminal illness.

Before entering into a viatical settlement, the policyholder must sign a document acknowledging their terminal illness. This step is crucial because a viatical settlement involves selling a life insurance policy to a third party for a lump sum payment, which is typically less than the face value of the policy. The purpose of acknowledging terminal illness is to confirm the policyholder's understanding of their situation and the implications of the settlement. This acknowledgment is important for both legal compliance and to ensure that the policyholder is fully aware of the terms and consequences of entering the settlement. It serves to protect both the individual and the buyer in the transaction, ensuring transparency and informed consent. In the context of entering a viatical settlement, other options such as submitting a financial report, obtaining a recommendation from an insurance agent, or selling other assets are not standard requirements, making the acknowledgment of terminal illness the key action the policyholder must complete.