Accelerated Option

An accelerated option in an insurance contract, usually in the form of a rider, allows for accelerated benefits or partial benefits sooner than they would otherwise be payable. Alternatively, in life insurance contracts, an accelerated option can refer to the option that allows the policy holder to apply the accumulated cash value to pay off the policy.

One form of an accelerated option is the accelerated death benefit rider in a whole life insurance policy. Accelerated benefits, also known as "living benefits," are life insurance policy proceeds paid to the policyholder before he or she dies. The benefits may be provided in the policies themselves, but more often they are added by riders or attachments to new or existing policies.

The terms and conditions of receiving the benefits are outlined in advance, and almost always include a provision for benefits if the policyholder becomes terminally ill. An accelerated option can also be activated when the need for long-term care or a medically incapacitating condition arises. The life insurance company will deduct the accelerated benefits payment from the death benefit it ultimately pays to the beneficiary.

Some insurers add an accelerated option to a life insurance policy for a small additional premium, usually computed as a percentage of the base premium. However, more insurance companies are offering these benefits at no additional premium, but charge the policyholder for the option only if it is used. In most cases, the life insurance company will reduce the benefits advanced to the policyholder before death to compensate it for the interest it will lose on its early payout. There may also be a nominal service charge.

Accelerated benefit options are usually added to whole, universal or other permanent life insurance policies, but some insurers are offering them in term life policies. Accelerated benefits may also be available through group term or group permanent life insurance policies. Accelerated options are usually offered at the time of purchasing a new life insurance policy, but many insurers will also add them to existing policies.

Life insurance policyholders with an accelerated option can expect to get 25 to 100 percent of the death benefit as early payment. The amount varies from policy to policy. The difference usually comes if accelerated benefits are added to the policy without an additional premium. Payments are made in monthly installments or in a lump sum. Some policies allow the policyholder to choose the method of payment. Each policy or rider specifies the payout methods available for accelerated options.