Accelerative Endowment

What Is Accelerative Endowment?

An accelerative endowment is an option in a whole life insurance policy that allows the policyholder to access the accumulated dividends in the account as a lump-sum payment rather than leaving them to be inherited by their beneficiaries.

In effect, the policyholder is using the accumulated dividends to convert the policy into an endowment policy prior to its normal maturity date.

Understanding Accelerative Endowment

An endowment policy can provide for a lump sum payment to the insured after a certain period, as specified in the contract. The accelerative endowment, also referred to as "living riders" in modern parlance, gives policyholders the option to receive a lump sum of money accumulated through dividends. This may be necessary in a case such as when the insured is diagnosed with a life-threatening illness and only has a certain amount of time to live. In such instances, the policyholder might file a claim on the option.

Certain insurance companies cap out the figure available through accelerative endowment to a certain amount.

The policy's beneficiary still receives the life insurance payment specified in the policy when the insured passes away. In this respect, the accelerative endowment policy differs from other whole life insurance options designed only to provide financial security to the policyholder's beneficiaries. These benefits are paid only upon the death of the insured. Cash for payouts pertaining to the endowment option is aggregated from dividend payments from the cash value of the contract.

The Lump Sum Option

The lump-sum option allows the insured to make alternative investments or arrange for a fixed income through the purchase of an annuity policy. In fact, the lump sum received can be invested any way a policyholder wants.

An accelerative endowment allows dividend accumulations to be applied to convert a whole life insurance policy into an endowment or to shorten the endowment term. An endowment life insurance policy will grow in value over a time period selected by the policyholder, such as 18 years, and will pay out a lump sum on a specified date, known as the maturity date, at the end of that time period.

The primary purpose of an endowment policy is to build cash value. In addition, an endowment policy provides life insurance protection for the term of the policy. If the policyholder dies before the policy matures, a benefit is paid for the full coverage amount. The amount paid at maturity or as a death benefit is the same amount.

In general, people buy whole life insurance to protect their families financially. With accelerative endowments, benefits are paid as a living benefit. In some cases, the beneficiary can borrow money against the money which has been invested. This is a contract option. In addition, the part of installments which is invested may generate earnings, which may be tax-deferred if the insurance policy is cashed in during the life of the insured.

Example of Accelerative Endowment Option

Jared is 78 and recently suffered from a heart attack and has been diagnosed with a life-threatening illness. He files a claim for an accelerative endowment option on his $100,000 whole life insurance policy. The underwriters at his insurance agency study the claim and approve it and he receives a check, equivalent to the dividend payment from the cash value component of his policy, two weeks later. Jared passes away a year later and his wife, who is his sole beneficiary, receives $100,000—the full amount of his policy.