An insured is diagnosed with a terminal illness and files a claim under an accelerated death benefit rider. What will the insurer most likely pay?

Why A is correct

An accelerated death benefit (ADB) rider lets a policyowner who becomes terminally ill or chronically ill receive a portion of the death benefit while living. The insurer advances a portion of the face amount, and the remaining death benefit payable at death is reduced by the accelerated amount, often plus a small administrative charge or interest. ADB proceeds are intended to cover medical or care costs and are generally income-tax-free if the insured meets the chronically or terminally ill requirements of IRC Section 101(g).

Why the other options are wrong

• B) The ADB does not create extra coverage; it pays the death benefit early, and the amount advanced is deducted from what the beneficiary later receives. The ADB simply pays part of the death benefit early, and the balance later is reduced accordingly.
• C) ADB pays a portion of the death benefit, not the cash value, and it is typically a lump-sum advance rather than a monthly income. ADB advances are usually a single payment against the face amount, not an income stream.
• D) Terminal illness is exactly the qualifying event for an ADB rider, so a claim would be payable under its terms. Terminal illness is the qualifying event, so the claim would be honored rather than denied.

Memory hook

ADB: spend a slice of the death benefit now; the family gets the remainder later.