Louisiana Series 103 – Life, Health, And Accident Or Sickness Insurance Practice Exam

Which statement correctly describes accelerated benefits in life insurance?

They are paid only at death They do not affect the death benefit They are always tax-free They reduce the death benefit by the amount paid

Correct Answer:

They reduce the death benefit by the amount paid

Explanation:

Accelerated benefits are living benefits that let you access part of the life insurance death benefit while the insured is still alive, usually for a terminal, chronic, or critical illness or for long‑term care needs. Because this is an advance on the amount that would be paid to beneficiaries later, the sum received is subtracted from the death benefit that would be paid at death. For example, if you have a $500,000 policy and take $100,000 as an accelerated benefit, the death benefit at the insured’s death would be reduced to $400,000 (assuming no other changes). Tax treatment can vary and isn’t guaranteed to be always tax-free; some accelerated benefits may be tax-free under certain IRS rules or policy specifics, but that depends on the situation and policy rider.

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