South Carolina Life and Health Practice Exam

Which of the following is considered to be an alternative to a life settlement?

1. Life insurance policy loan

2. Death benefit transfer

3. Accelerated death benefit rider

4. Term conversion option

The correct answer is: Accelerated death benefit rider

The correct choice is accelerated death benefit rider, as it serves as a viable alternative to a life settlement by providing policyholders with immediate access to a portion of their death benefit while they are still living, typically in cases of terminal illness or critical health situations. This option allows insured individuals to receive funds that can be used for medical expenses, long-term care, or other financial needs without the necessity of selling their life insurance policy. In contrast, a life insurance policy loan involves borrowing against the cash value of a permanent life insurance policy, which requires repayment and can reduce the death benefit if not managed properly. A death benefit transfer is not a commonly recognized financial product in the context of life insurance alternatives. Lastly, a term conversion option allows a policyholder to convert a term life insurance policy to a permanent policy but does not provide immediate cash benefits like an accelerated death benefit rider does. Therefore, the accelerated death benefit rider stands out as the most direct alternative to life settlements by facilitating financial assistance when needed most.