Illinois Life Producer State-designated Practice Exam

Who may claim viatical settlement proceeds?

1. The policyholders only

2. Spouses only

3. Creditors

4. Beneficiaries only

The correct answer is: Creditors

The correct answer indicates that creditors may claim viatical settlement proceeds because these proceeds can be considered part of the policyholder's assets. When a viatical settlement is executed, the life insurance policy is sold to a third party—often at a discounted rate—to secure immediate cash for the policyholder, typically someone who has a terminal illness. In situations where the policyholder has outstanding debts or obligations, creditors often have the legal right to claim proceeds from such settlements to satisfy those debts. The rationale behind this is that viatical settlements provide a form of liquid asset that creditors can pursue just like any other financial asset belonging to the policyholder. The other options do not encompass the full scope of who may claim proceeds from a viatical settlement. While policyholders and beneficiaries may have rights related to the life insurance policy itself, the specific context of viatical settlements allows creditors to have a claim in order to address debts incurred by the policyholder.