United States
Hong KongAccelerated death benefits
An accelerated death benefit pays part of the face amount to the insured while still living, on proof of a qualifying condition. Texas allows it for terminal illness, long term care illness, or a condition likely to cause permanent disability or premature death. Whatever is advanced reduces the death benefit.
This provision does something no other part of a life policy does. It pays the insured rather than the beneficiary, and it pays before the death that the contract was written around.
What Texas permits
An insurer may pay an accelerated benefit under an individual or group term life insurance policy or certificate if the insurer has received a written medical opinion, satisfactory to the insurer, that the insured has a terminal illness, a long-term care illness, or an illness or physical condition that is likely to cause permanent disability or premature death.
Texas Insurance Code, TIC 1111.052
Three triggers, and a written medical opinion in every case. The exam's version of this is simpler than the statute: a qualifying condition, certified, and the insurer advances part of what it would have paid at death.
The mechanics
- Only part of the face amount is available, up to whatever the contract allows.
- The advance reduces the death benefit payable later, and usually reduces the cash value too.
- There are no restrictions on how the insured spends it. It is not a reimbursement of medical bills.
- It may be a built-in provision or a rider, depending on the contract.
That third bullet distinguishes it from a long term care policy, which reimburses or pays a daily benefit for care actually received. An accelerated death benefit is the insured's own money, early.
Accelerated benefit against viatical or life settlement
| Accelerated death benefit | Viatical or life settlement | |
|---|---|---|
| Who pays | The insurer | A third-party buyer |
| Who owns the policy afterward | The original owner | The buyer |
| Who receives the death benefit | The original beneficiary, reduced | The buyer, in full |
| Who pays future premiums | The owner | The buyer |
| How much of the value is realized | Part of the face amount | A negotiated price, above cash value |
Both give a seriously ill insured access to value while alive, and that shared purpose is what makes them confusable. The difference is ownership. One is an advance from the insurer against a policy you keep. The other is a sale of the policy to somebody else. Life settlements have their own sub-item in section IV and are covered in third-party ownership and life settlements.
An insured with a terminal diagnosis takes an accelerated benefit of part of his face amount. He dies eight months later. What does the beneficiary receive?
- The full face amount, since the accelerated benefit was a loan
- The face amount less the accelerated benefit and any charges
- Nothing, since the benefit has been paid out
- The cash value only
Where it appears on the paper
- General portion
- Section II, provisions and options, 15 questions
- Texas portion
- Life only, 6 questions: accelerated term life benefits, TIC 1111.052
- Also Texas
- Group life accelerated benefits, TIC 1551.254
- Sister topic
- Long term care riders in the same section
Two of the four rows point at the Texas portion, which is unusual for a life provision. The Texas life-only section is worth 6 questions across seven headings, so accelerated benefits is a plausible one-question topic there in its own right, on top of whatever it draws in the general portion.
The opinion, and the concession
This is the topic where reading the Texas statute is faster than reading a summary of it. TIC 1111.052 is one sentence, it lists the three qualifying conditions in order, and the exam's questions come straight off it. Two minutes with the actual section beats twenty minutes with a paraphrase, and it is the reason our Texas questions cite the section rather than a page number in a manual.
The concession: how much of the face amount can be accelerated, and what charge the insurer makes for advancing it, are contract terms and the Administrative Code has rules on the disclosure. We do not hold Title 28, so this page states no percentage and no fee. The tax treatment of an accelerated benefit is federal, and it depends on facts about the insured that the exam does not usually give you.
Common questions
Does an accelerated death benefit have to be repaid?
No. It is an advance against the death benefit rather than a loan, so nothing is repaid. What happens instead is that the amount payable at death is reduced by what was advanced, along with any charge the contract makes for the acceleration.
What conditions qualify in Texas?
TIC 1111.052 allows an insurer to pay accelerated benefits where a written medical opinion satisfactory to the insurer says the insured has a terminal illness, a long-term care illness, or an illness or physical condition likely to cause permanent disability or premature death.
How is an accelerated benefit different from a life settlement?
An accelerated benefit comes from the insurer and the owner keeps the policy, with the remaining death benefit going to the original beneficiary. A life settlement is a sale to a third party, who becomes the owner, pays the future premiums and receives the whole death benefit.
Can the insured spend the money on anything?
Yes. An accelerated death benefit is not a reimbursement of medical costs and carries no restriction on use, which is what separates it from a long term care policy that pays for care actually received. It is the policy's own value, taken early.