Another InsWeb article discusses what to do if the unfortunate happens, and you must file a claim to collect on a recently expired loved one’s life insurance policy. But what if someone didn’t pass away, but instead was diagnosed with a terminal illness? Are there options for early payouts on life insurance in this case? Yes, there are, in nearly all policies. This article will examine what to do if you need to collect early on a policy.

Accelerated Benefits

Usually, a life insurance policy is purchased to ensure survivors’ financial well-being, and the benefits are paid to the beneficiary after the death of the insured. Those benefits are termed “accelerated” if they are paid directly to a terminally or chronically ill person before he or she passes away.

For instance, if an insured is diagnosed with a terminal illness (which usually means death is expected within 24 months), an acute illness (such as acute heart disease or AIDS), a chronic illness (that requires extensive medical treatment and significantly reduces life expectancy) or is permanently confined to a nursing home, most companies will offer an accelerated benefits payout option (can be either a lump sum or in monthly installments and the percentage of benefits that each company will pay out varies; check your policy for more information on how this is handled). If there are any policy proceeds left over after the insured expires, these will go to their beneficiaries. If the insured should unexpectedly recover from one of the conditions considered serious enough to warrant accelerated payments, they will not have to repay the amount of premium they used, and again any leftover proceeds will go to their beneficiaries when they pass away.

Provisions for how each insurance company handles the issue of accelerated benefits should be outlined in your policy (they are usually either included in the policy or attached as a rider for a small amount extra; some companies do not charge for the option unless it is used.)

Accelerated benefits are not intended to replace long-term care or health insurance, but they can be an important safeguard for the insured and his or her loved ones if a chronic or terminal illness is diagnosed. Ask your agent or read through your policy to find out how accelerated benefits are treated. Most of the top companies that participate in InsWeb’s life insurance marketplace offer this option in some form.

Life insurance is not only a tool to ensure that loved ones are provided for upon your death, it can also help you and your loved ones if medically necessary before your death. Medical treatments can be very costly, and often health and long-term care insurance do not cover all that is needed to help pay for this treatment. This makes it even more important to keep yourself and your loved ones covered with life insurance.

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