Final answer:
Using an accelerated death benefit reduces the face value of a life insurance policy by the amount withdrawn, resulting in a lowered benefit for the beneficiaries upon the policyholder's death.
Step-by-step explanation:
If an insured opts to use the accelerated death benefit on their life insurance policy, the net effect is a reduction in the face value of the policy. The accelerated death benefit allows the policyholder to receive a portion of the death benefit while they are still alive, usually in the case of a terminal illness. This amount is subtracted from the total amount payable upon death. Consequently, beneficiaries will receive a reduced death benefit when the insured passes away.
For instance, if the face value of the policy is $500,000 and the policyholder uses an accelerated death benefit of $200,000, the remaining face value of the policy would be $300,000. It is essential to understand the terms and conditions of this feature, as it might involve fees and interest, further affecting the remaining value of the policy.