What Is an Accelerated Option?

An accelerated option refers to a clause or provision in an insurance contract that allows the insured party with access to accelerated or partial benefits sooner than they would otherwise be payable. In life insurance contracts, an accelerated option is an option that allows the policyholder to apply the accumulated cash value to pay off the policy in one lump sum. Accelerated options, also referred to as accelerated benefits, normally come in the form of a rider.

Key Takeaways

  • An accelerated option is an insurance contract provision giving the insured party accelerated or partial benefits sooner than they would otherwise be payable.
  • These options are also referred to as accelerated benefits and normally come in the form of a rider.
  • Options can be added when the policy is first purchased or when a policy is already in effect. 
  • Accelerated life options come at an additional cost to the policyholder. 

Understanding Accelerated Options

An accelerated option is a clause that can be added to various insurance contracts including life insurance policies by policyholders. 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 or, in some cases, when a policy is already in effect. 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. The life insurance company will deduct the accelerated benefits payment from the death benefit it ultimately pays to the beneficiary.

Accelerated life options come at an additional cost to the policyholder. They are 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 charge a small fee for doing so.

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

Special Considerations

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 one lump sum.

Insurance companies may have different conditions regarding when and how much a policyholder can pull these benefits. For example, insurance policy contracts may outline that an insured party must be at a certain point near death before taking advantage of their accelerated options in addition to how much money the policyholder can withdraw. Early payments for insured policyholders with an accelerated option on their policies can be as much as 25% to 100% of the death benefit.

When a policyholder receives a partial benefit from an accelerated option, it decreases the final or death benefit of their policy by that same amount. In certain cases, though, the option allows an insured party to take out all or a portion of the cash value of their policy as a benefit.

As noted above, accelerated options or benefits generally come in the form of a 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. Requesting and buying the rider is the responsibility of the insured party and not the insurer.