South Carolina Insurance Practice Exam

What benefit do Accelerated Death Benefits typically provide?

1. Lump-sum payment upon policy initiation

2. Partial payment of death benefit while insured is alive

3. Taxable income to the beneficiary

4. Reduction of face value upon payment

The correct answer is: Partial payment of death benefit while insured is alive

Accelerated Death Benefits provide a partial payment of the policy's death benefit to the insured while they are still alive, typically in the event of a terminal illness or critical health condition. This feature allows policyholders to access necessary funds for medical expenses, living costs, or any other financial needs they might have during a difficult time, significantly improving their quality of life by alleviating some financial burdens. Lump-sum payments upon policy initiation would not typically relate to Accelerated Death Benefits, as these benefits are contingent upon the insured’s health status and are not available at the policy's start. Tax implications of the benefits also clarify that while some aspects of insurance proceeds can be taxable, Accelerated Death Benefits used for medical costs often remain non-taxable, contrasting with the notion that they are considered taxable income to the beneficiary. Lastly, the reduction of face value upon payment only applies to the remaining death benefit after an accelerated payment is made, not as a defining aspect of what Accelerated Death Benefits provide, which is primarily assistance during the insured's lifetime. Thus, understanding these benefits clarifies their role in providing financial relief when it is needed most.