What Is an Accelerated Option?

An accelerated option is a clause in an insurance contract that allows the policyholder to receive part of the cash benefit sooner than it would normally be paid.

Accelerated options, also referred to as accelerated benefits, normally come in the form of a rider to a contract.

Key Takeaways

  • An accelerated option is an insurance contract provision that allows the policyholder to withdraw benefits early under some circumstances.
  • The option is most often used for end-of-life care when necessary.
  • The option can be added when the policy is first purchased or when a policy is already in effect.  

Understanding Accelerated Options

An accelerated option clause can be added to various insurance contracts, including life insurance policies. Whole, universal, and other types of permanent life insurance come with the accelerated benefit option. Some term life, group life, and group term life providers also offer this option.

These options can be added when the policy is first purchased or, in some cases, when a policy is already in effect.

In a life insurance contract, an accelerated option may allow the policyholder to apply the accumulated cash value to pay off the policy in one lump sum.

The terms and conditions almost always include a provision for benefits if the policyholder becomes terminally ill. Accelerated options can also be activated when long-term care is needed or when there is a medically incapacitating condition.

Cost of the Option

The life insurance company will deduct the payment of the accelerated benefit from the death benefit it ultimately pays to the beneficiary.

An accelerated life option comes at an additional cost to the policyholder. The cost is normally calculated as a percentage of the original premium for the policy.

Many insurance companies don't charge a separate premium for the accelerated life option unless the policyholder actually uses it. If the insurance company pays out the benefit before the policyholder's death, it may reduce the payout and charge a small fee for doing so.

Accelerated life options come at an additional cost to the policyholder.

Special Considerations

Insurance companies may have conditions regarding when a policyholder can receive an accelerated benefit. For example, the contract may state that an insured party must be at a certain point near death before taking advantage of the accelerated option.

In addition, the company may put a limit on how much of the total benefit can be withdrawn. Early payments may range from 25% to 100% of the total death benefit.

When a policyholder receives a partial benefit from an accelerated option, it decreases the final or death benefit of the policy by that same amount.

As noted above, accelerated options generally appear as a contract rider. A rider is a special provision that makes an amendment or adds a benefit to a policy. Riders typically provide policyholders with additional coverage to meet their needs.