An insured with a terminal illness diagnosis (less than 12 months to live) requests payment from the accelerated death benefit (ADB) rider on his California life insurance policy. Which statement BEST describes the operation of this rider?
Explanation
Under California Insurance Code §10113.1 (and §10295.10 for disclosure requirements) and IRC §101(g), an accelerated death benefit (ADB) rider permits an insured who is terminally ill (typically certified as having 24 months or less to live, or in some contracts 12 months) or chronically ill to receive a portion of the policy's death benefit while still alive. The amount accelerated reduces the death benefit ultimately paid to the beneficiary, and any policy loans must be addressed. Properly structured ADB payments are excluded from gross income under IRC §101(g). Option A is wrong because the rider accelerates, it does not add to, the death benefit. Option B confuses ADB with a §1035 exchange to an LTC annuity. Option D is fabricated; ADB is available on most permanent and many term policies, requires only the qualifying medical certification, and does not require active hospitalization.
Law Reference: California Insurance Code §10113.1 (accelerated death benefits / living benefits)Practice all 315 questions free — no signup required.
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