In what circumstance would an accelerated death benefit typically be paid out?

An accelerated death benefit is a provision in some life insurance policies that allows for a portion of the death benefit to be paid out to the insured while they are still living, typically under specific circumstances. The primary situation where this benefit would trigger is when the insured is diagnosed with a terminal illness, meaning they have a limited life expectancy, often defined as a prognosis of 12 months or less. This allows individuals to access funds that can be used for medical care, end-of-life expenses, or any other financial needs they may have as they approach the end of life.

While critical illness may lead to similar financial pressures, it usually does not meet the criteria for accelerated benefits unless expressly stated in the policy, as it may not indicate imminent death. Death benefits are paid after the insured passes away and surrendering the policy early causes different financial implications altogether, generally impacting the remaining benefits or cash value. Thus, the specific linkage between terminal illness and the acceleration of benefits makes this scenario the correct choice.