Maryland Life and Health Insurance License Practice Exam

What is the primary purpose of having an accelerated death benefit on a life insurance policy?

1. It allows for cash advances against the death benefit if the insured becomes terminally ill

2. It increases the death benefit amount payable

3. It converts the policy to a permanent life insurance policy

4. It provides a refund if the insured does not die

The correct answer is: It allows for cash advances against the death benefit if the insured becomes terminally ill

The primary purpose of an accelerated death benefit is to allow the policyholder to access a portion of the death benefit while they are still alive, specifically in the event of a terminal illness. This provision is designed to provide financial support when the insured faces significant medical expenses or needs care at the end of life. By accessing these funds, individuals can alleviate the financial burden on themselves or their families during a difficult time, enabling them to manage health care costs, pay off debts, or make necessary arrangements. In contrast, increasing the death benefit amount, converting a policy to a permanent life insurance product, or providing a refund if the insured does not die does not align with the definition and intent of an accelerated death benefit. Instead, the focus is solely on providing accessible funds to the insured when facing terminal health conditions, helping to enhance their quality of life during their remaining time.