What is Accelerated Option
An accelerated option in an insurance contract, usually in the form of a rider, allows for accelerated benefits or partial benefits sooner than they would otherwise be payable. Alternatively, in life insurance contracts, an accelerated option can refer to the option that allows the policyholder to apply the accumulated cash value to pay off the policy.
BREAKING DOWN Accelerated Option
One form of an accelerated option is the accelerated death benefit rider in a whole life insurance policy. Proceeds that are paid to the policyholders before death are called accelerated benefits or living benefits. They are generally added as attachments to new policies or those that are in effect.
The terms and conditions of receiving the benefits are outlined in advance and almost always include a provision for benefits if the policyholder becomes terminally ill. An accelerated option can also be activated when the need for long-term care or a medically incapacitating condition arises. The life insurance company will deduct the accelerated benefits payment from the death benefit it ultimately pays to the beneficiary.
If the policyholder chooses to take an accelerated life option, it can be added for an additional cost. This 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 uses it. If the insurance company pays out the benefit before the policyholder's death, it may reduce the payout, and may charge a small fee for doing so.
Whole, universal, and other types of permanent life insurance are general policies that 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.
Accelerated Option Payouts
Early payments for insured policyholders with an accelerated option on their policies can be as much as 25% to 100% of the death benefit. The amount an insured person receives depends on the policy, It also depends on whether the benefits are added without any extra premium payments required. Policyholders can make their premium payments each month or in a lump sum.