Question

A life insurance policyowner 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?

Option 1: Higher premiums.
Option 2: Accelerated death benefits.
Option 3: Increased coverage limits.
Option 4: Extended policy term.

Answer 1

Option 2: Accelerated death benefits are payable to a life insurance policy owner with a terminal illness, allowing them to receive part of their death benefit while still alive.

Step-by-step explanation:

When a life insurance policy owner has been diagnosed with a terminal illness, and their life expectancy is substantially reduced, Option 2: Accelerated death benefits are often payable.

Accelerated death benefits are a feature in some life insurance policies that allow policy owners to receive a portion of their death benefit while they are still alive if they meet certain criteria, such as having a terminal illness.

Cash-value (whole) life insurance policies offer both a death benefit and the potential to build a cash value, which can be accessed by the policy owner for various needs. In the case of terminal illness, a policyholder may be able to use the accumulated cash value or might opt for the accelerated death benefits.

Insurance calculations, such as calculating premiums for life insurance, take into account factors like family medical history and the probability of a claim within a certain period. The actuarially fair premium for each group would be different based on their risks, ensuring that the insurance company covers potential claims while remaining profitable.