Which accelerated benefit payout method is best?

Written by Hannah McCullough Insurance Researcher & Writer

Which accelerated benefit payout method is best for you depends on how your policy calculates the amount you can access early and how much of the death benefit remains for your beneficiaries. An accelerated benefit, sometimes called a living benefit, lets you receive part of your life insurance death benefit while you are still alive if you meet your policy’s qualifying condition, such as a terminal, chronic, or critical illness. Before you request one, understand how the payout method changes what your family eventually receives.

What are the main accelerated benefit payout methods?

The two main accelerated benefit payout methods are the lien method and the discount method. Each one changes how much money you receive now and how much your policy’s death benefit shrinks afterward. Your insurer’s contract determines which method applies, and some carriers do not offer a choice.

The lien method treats your accelerated payout like a loan against the policy. The insurer pays you the amount you request, then places a lien on the policy that grows with interest until you pass away or the policy ends. Your beneficiaries receive the remaining death benefit after the insurer subtracts the lien and any interest that built up.

The discount method works differently. Instead of adding a lien, the insurer reduces your payout today based on your life expectancy and a set discount rate, similar to calculating the present value of the future death benefit. You receive less than the full amount you accelerate, but your remaining coverage is not reduced further by ongoing interest.

If you want to see what this could look like for your own coverage, you can see your estimated rate in minutes and talk it through with a licensed life insurance agent.

What happens to the death benefit that’s left afterward?

Once you pass away, whatever death benefit remains after an accelerated payout still moves through the same beneficiary claim process as any other policy. Washington’s insurance regulator advises a named beneficiary to contact the policyholder’s insurer or agent and notify them of the death. Washington’s insurance regulator says a beneficiary will need to submit a copy of the death certificate with the claim. The insurer then reviews the claim before releasing the remaining balance.

If your beneficiaries cannot find your policy or are unsure whether you used an accelerated benefit before you passed, the NAIC Life Insurance Policy Locator is a free tool that helps consumers search for a deceased person’s life insurance policies and annuity contracts. If the locator finds a policy and you are the beneficiary, the life insurer or annuity company contacts you directly. This can help your family locate benefits they did not know existed.

How does the contestability period affect an accelerated benefit request?

The contestability period is the first two years after your policy is issued or increased, during which an insurer can review your application more closely before paying any benefit, including an accelerated one. In New York, the contestability rule can apply within two years of the policy’s date of issue or the effective date of an increase or change. If you request an accelerated benefit during that window, expect your insurer to double-check your original application before approving the payout.

If the insurer finds a material misrepresentation on your application, it can deny the request or rescind the policy, whether you are asking for an accelerated benefit or your beneficiary is filing a standard death claim later. Note that this New York rule is not a universal nationwide rule. For another state, verify that state’s statute and your policy language.

How do you choose the best payout method for your family?

Choosing which accelerated benefit payout method is best for your family depends on how much of the death benefit you want to preserve versus how much you need to access right now. The lien method can make sense when you are less concerned about interest reducing what is left later. The discount method can make sense when you want a single, predictable reduction with no ongoing interest calculation.

Think about your beneficiaries’ plans for the remaining death benefit. Some families prefer the discount method’s smaller, predictable reduction today. Others are comfortable with the lien method’s interest if it means a larger payout while you are alive. Also think about the claim denial appeal services worth the cost if your beneficiaries’ eventual claim is ever disputed.

Talk with a licensed life insurance agent before you request either method. They can walk through your policy’s exact terms, since carriers calculate lien interest and discount rates differently.

What should you consider before deciding?

Before deciding, review your policy contract for the exact lien or discount terms your insurer uses. Ask what interest rate applies to the lien method, or what discount rate and life-expectancy assumptions apply to the discount method. Both figures vary by carrier and are not standardized.

Also consider your qualifying condition. Insurers set different thresholds for terminal, chronic, and critical illness triggers, so read your rider’s definitions closely before you apply. Finally, keep your beneficiary designations current, since whatever death benefit remains after an accelerated payout still passes to whoever you have named.

Choosing the right payout method is a personal decision that depends on your health, your finances, and how much you want to leave behind. A licensed life insurance agent can help you compare the lien and discount methods side by side.

If you are unsure which accelerated benefit payout method is best, consider getting an estimate of your coverage options and asking your insurer how it calculates each method. Start by reviewing your current policy and talking to a licensed agent.