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An accelerative endowment is a beneficial feature found in whole life insurance policies. It offers the policyholder an opportunity to access the dividends accumulated over the life of the policy in a lump-sum payment. Rather than leaving the dividends to be inherited by their beneficiaries, the policyholder can opt to convert the policy into an endowment policy before its normal maturity date.
Defining Accelerative Endowment
The traditional role of life insurance policies has been to provide financial security for beneficiaries after the policyholder's demise. However, accelerative endowment introduces a more flexible option that allows policyholders to benefit from their policy during their lifetime.
Referred to as 'living riders' in modern terms, an accelerative endowment gives policyholders the chance to access a lump sum of money accumulated through dividends. This feature can be particularly useful in situations where the insured is diagnosed with a life-threatening illness or during significant life milestones.
Despite the policyholder's decision to cash in the accelerative endowment, the beneficiary still receives the full benefits specified in the policy after the insured's death.
Accelerative Endowment and Cash-Value Life Policies
Cash-value life policies can be structured with certain endowment ages in mind. These are specific ages at which the policyholder can choose to receive their death benefit as a lump sum payment. Traditionally, endowment ages have been set around 95 or 100 years old. However, with people living longer, many insurance companies have pushed the endowment age back to around 120 years.
Dividends from the insurance company can help accelerate the endowment age, enabling the policyholder to access the lump sum payment sooner. Some policies also allow the policyholder to accelerate the death benefit and have it paid out while they are alive if they are diagnosed with a chronic illness or have 12 months or less to live.
The Role of Living Benefits Riders
Living benefits riders are a central part of accelerative endowments, allowing policyholders to access the death benefit while still alive under specific conditions. The amount that can be accelerated usually caps between $100,000-$250,000, with some companies offering up to $500,000.
Agents licensed in both health and life insurance are commonly required to offer these benefits, which are becoming increasingly standard in the life insurance industry.
Less Common Accelerative Endowment Policies
Historically, certain policies would structure payouts for a specific amount at a certain age, such as the start of college or at age 65. These policies would then terminate. The endowment ages of these policies could be accelerated if the policy earned more interest or dividends than initially projected. However, such policies have become less common.
Return of Premium (ROP) term insurance policies are another type of life insurance policy that offers a lump-sum payment at a certain time. If the insured outlives the term period of the life insurance contract, they receive a sum equal to premiums paid. The popularity of these policies has dwindled, primarily due to persistent low interest rates.
Accelerative endowment represents a shift towards more flexibility in life insurance policies, catering to the needs of policyholders during their lifetime and not just after their death. While traditional endowment policies and certain accelerative endowment policies have become less prevalent, living benefits riders continue to gain prominence, promising policyholders more control over their financial future.
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