Colorado Life Producer License Practice Test

In what situation may an insurance company legally pay the full death benefit before the insured's death?

1. If the insured requests it in writing

2. If the insured is declared permanently disabled

3. If the insured is terminally ill

4. If the policy term is about to expire

The correct answer is: If the insured is terminally ill

The correct response is linked to the provision typically found in life insurance policies that allows for early payout of benefits in certain circumstances, notably terminal illness. When an insured person is diagnosed with a terminal illness, they may face mounting medical expenses and a reduced life expectancy. Many life insurance companies offer a rider known as an accelerated death benefit, which permits the insured to access a portion or the entirety of the death benefit before their passing. This is specifically intended to provide financial support during a challenging time, allowing the insured to use the funds for necessary care or personal matters. In contrast, other situations presented do not inherently allow for the advance payment of the full death benefit. A simple written request from the insured does not constitute a legitimate basis for early payout, as insurance contracts are binding agreements that do not allow for payout until a covered event occurs, primarily death. Similarly, while a permanent disability might trigger certain benefits under disability insurance, it does not typically enable a life insurance policy to pay out the death benefit early. Lastly, if the policy term is about to expire, the policy may lapse or require renewal, but it does not trigger early payment of the death benefit, as benefits are only disbursed upon the insured's death, unless other specific provisions apply