What is an accelerated settlement?
An accelerated endowment is an option in a whole life insurance policy that allows the policyholder to access the accumulated dividends in the account as a lump sum payment, not if they are inherited by their beneficiaries.
In effect, the policyholder is using the accumulated dividends to convert the policy into an endowment policy before its normal maturity date.
- The accelerated endowment option enables policyholders to make use of lump-sum dividend payments instead of paying them to beneficiaries.
- Accelerated endowment options can be beneficial for people who have been diagnosed with life-threatening illnesses or those on the occasion of an important milestone in life.
- The beneficiary of the policyholder gets the full benefit even after the death of the insured.
Understanding Accelerated Endowment
An endowment policy may provide a lump sum payment to the insured after a specified period, as specified in the contract. Accelerator Endowment, also called “living rider” in modern parlanceGives policyholders an option to receive a lump sum amount of accumulated corpus by way of dividend. This may be necessary in a case when the insured is diagnosed with a life-threatening illness and has only a certain amount of time to live. In such cases, the policyholder can file a claim at the option. Some insurance companies limit the figure available through accelerator endowments to a certain amount.
The beneficiary of the policy still receives the insurance payout specified in the policy when the life insured dies. In this respect, the accelerator endowment policy differs from other whole life insurance options, which are designed to provide financial protection only to the beneficiaries of the policyholder. These benefits are paid only on the death of the insured. Cash for payments related to the endowment option is collected from the contract’s cash value from dividend payments.
lump sum option
The lump sum option allows the insured to make alternative investments or arrange for a fixed income through the purchase of an annuity policy. In fact, the lump sum amount received can be invested in any way the policyholder wishes.
An accelerated endowment allows a whole life insurance policy to be converted into an endowment or to implement dividend accumulation to shorten the endowment period. An endowment life insurance policy will increase in value over a period of time chosen by the policyholder, such as 18 years, and pay a lump sum at the end of that time period on a specified date, known as the maturity date.
The primary objective of an endowment policy is to create cash value. In addition, an endowment policy provides life cover for the term of the policy. If the policyholder dies before the maturity of the policy, a benefit is paid for the full coverage amount. The amount paid on maturity or as death benefit is the same amount.
In general, people buy whole life insurance to keep their family financially secure. With accelerated endowment, the benefit is paid out as a living benefit. In some cases, the beneficiary can borrow money against the money invested. This is a contract option. In addition, part of the installments invested can generate income, which may be tax-deferred if the insurance policy is redeemed during the life of the insured.
Example of an accelerated settlement option
Jared is 78 years old and has recently suffered a heart attack and was diagnosed with a life-threatening disease. He files a claim for an accelerated settlement option on his $100,000 whole life insurance policy. His insurance agency’s underwriters study and approve the claim, and two weeks later he receives a check from the cash value component of his policy equal to the dividend payment. Jared died a year later and his wife, who is his sole beneficiary, receives $100,000.–the full amount of his policy.
Who can benefit from the accelerated settlement option?
Those with life-threatening illnesses who have only a short time to live are good candidates. Also, people who are facing an important milestone in life may want to investigate alternatives.
What is a lump sum option in accelerated settlement?
An accelerated endowment gives policyholders the option to receive a lump sum amount of accumulated corpus by way of dividends. The lump sum option allows the insured to make alternative investments or arrange a fixed income through the purchase of an annuity policy. In fact, the lump sum amount received can be invested in any way the policyholder wishes.