Question 72

An alternative to a life settlement is an accelerated death benefit rider.

An accelerated death benefit rider allows policyholders to access a portion of their life insurance benefits while they are still alive, typically in cases of terminal illness. This option provides financial support in a time of need, serving as an alternative to life settlements.

A) a modified endowment contract.

A modified endowment contract (MEC) is a type of life insurance policy that has been funded with excess premiums, which can limit the tax benefits associated with the policy. While it is a specific type of life insurance, it does not serve as an alternative to a life settlement, as it does not provide immediate access to funds in the same way that an accelerated death benefit rider does.

B) a long-term care insurance rider.

A long-term care insurance rider is an addition to a life insurance policy that can provide benefits to cover long-term care expenses. While it offers valuable financial protection for healthcare needs, it does not function as an alternative to life settlements, which specifically involve accessing life insurance benefits for cash needs.

C) an accelerated death benefit rider.

An accelerated death benefit rider allows the insured to withdraw a portion of the death benefit while still alive, typically due to terminal illness or severe medical conditions. This option provides liquidity and financial support, making it a direct alternative to life settlements for accessing funds from life insurance.

D) increasing term insurance.

Increasing term insurance is a policy that provides a death benefit that increases over time but does not allow for early access to funds. It is primarily a death benefit product and does not offer the same liquidity or financial assistance options as an accelerated death benefit rider, therefore not serving as an alternative to life settlements.

Conclusion

The accelerated death benefit rider is the most appropriate alternative to a life settlement as it allows for the early access of life insurance funds under specific circumstances. Other options, such as a modified endowment contract or a long-term care rider, do not provide the same immediate financial access, while increasing term insurance does not offer any cash value access at all. Thus, option C stands out as the correct choice.