Question

A life insurance policy owner has been diagnosed with a terminal illness. Which of the following is often payable to a policy owner whose life expectancy is substantially reduced due to illness?:

A) Accelerated Death Benefit
B) Surrender Value
C) Guaranteed Interest
D) Annuity Payout

Answer 1

An Accelerated Death Benefit is payable to a life insurance policy owner diagnosed with a terminal illness, allowing them to receive part of the death benefit early for expenses, unlike the surrender value, guaranteed interest, or annuity payout.

Step-by-step explanation:

In the case of a life insurance policy owner who has been diagnosed with a terminal illness and whose life expectancy is substantially reduced due to illness, the payable benefit is often an Accelerated Death Benefit. This feature allows the policyholder to receive a portion of their death benefit while they are still alive to cover medical expenses or other needs.

Unlike the surrender value, which is the cash value that might accumulate over time and can be accessed under different circumstances, the Accelerated Death Benefit is specifically designed for situations where the insured's life expectancy is reduced.

It is important to note that this benefit reduces the final payout to the beneficiaries upon the policyholder's death. It is not to be confused with guaranteed interest, which pertains to growth in cash values, or an annuity payout, which refers to regular payments from an annuity investment.