Insurers suddenly realized that at least some of their policyholders needed the contracted death benefit for themselves--sometimes to pay exorbitant medical expenses, sometimes to handle living expenses when the policyholder was too sick to work.

Insurers responded slowly at first but have since picked up speed, according to the American Council of Life Insurance in Washington, D.C. Whereas there were only about 1.1 million policies that allowed so-called accelerated death benefits in 1991, by 1994 about 18 million policyholders had a living-benefit option. The ACLI believes this option will be extended to all American policyholders by the turn of the century.

What is an accelerated benefit? Who can get one, and what does that person get? A question-and-answer look.

* * *Q: What is an accelerated or "life" benefit?

* * *A: In a nutshell, it's a formula for getting a portion of the death benefit from a life insurance policy--whether the policy is term or cash value, group or individual--before you die.

Generally, insurers who offer these benefits--about 281 of the nation's 1,700 insurers do, according to the most recent industry survey, in 1994--allow terminally ill policyholders to cash out between 25% and 100% of their policy's death benefit up to 24 months before the time the policyholder is expected to die.

* * *Q: Is this only for people who are terminally ill?

* * *A: Yes. To apply for an accelerated benefit, your doctor must certify that you have a disease that is certain to kill you within a fairly short period of time. Some insurers will require a second medical examination by their own doctors, just to make sure that your doctor isn't overly pessimistic.

* * *Q: What is considered a short period of time?

* * *A: Some insurers will not provide accelerated benefits to anyone who has a prognosis that gives him or her more than six months to live. Others will offer "life benefits" to anyone whose prognosis gives him or her up to 24 months to live. Those who have longer than two years to live generally cannot receive an accelerated benefit.

* * *Q: You said insurers will allow you to cash out between 25% and 100% of the death benefit. Why such a wide range? What does the cash-out level depend on?

* * *A: The percentage of the death benefit that you can receive before death depends on the insurer's rules. Some companies won't allow policyholders to cash out more than 25% of the death benefit because they believe that insurance is primarily for heirs. Other insurers, particularly those with numerous AIDS patients as customers, are likely to allow a higher cash-out percentage partly because they recognize that many of their policyholders have no dependents who would be relying on the insurance proceeds to survive.

* * *Q: Why might you need an accelerated benefit, and how would it work?

* * *A: Let's look at a hypothetical case. John has received a diagnosis of inoperable cancer. His doctor says he has just six months to live. John hears about an experimental and expensive treatment at the Mayo Clinic and wants to try it. His health insurer won't pay for experimental treatments, so he must find another way to finance the treatment. He happens to have a $100,000 life insurance policy with Minnesota Mutual Life Insurance Co. of St. Paul, Minn.

He calls his agent, who tells him that Minnesota Mutual has an automatic accelerated benefit rider that can allow him to access up to 75% of the death benefit on his policy as long as he has less than 12 months to live. John qualifies, so the agent asks him to get copies of his medical records and to get a certified doctor's statement indicating that John is indeed on his deathbed. Once Minnesota Mutual has all the medical proof in hand, the company can process a check overnight, says Connie O'Brien, life marketing specialist at Minnesota Mutual.

If John cashes out the maximum amount of $75,000, his heirs will get just $25,000, minus some interest charges, after he dies.

* * *Q: How do I know what percentage payout my insurer would allow?

* * *A: You probably have to ask. That's because many insurers offer accelerated benefits even on old policies that didn't have accelerated benefit clauses written into the contracts.