Q

What is an accelerated death benefit?

A

A free life insurance policy rider that lets you access your death benefits when you’re still alive, usually to cover the cost of care for a terminal illness.

An accelerated death benefit (ADB) is a life insurance policy rider that allows you to access your death benefits if you’re facing a terminal illness. The accelerated death benefit rider is a common policy add-on and is often included in your policy at no extra cost.

The accelerated death benefit is also known as the terminal illness benefit. Specific conditions, such as having a critical illness or shortened life expectancy, must be met for the rider to kick in. In most cases, only a portion of the death benefit funds will be paid out to the policyholder by the insurance company.

This money can be used toward medical expenses and can alleviate any financial burden on loved ones during your final years. Receiving the death benefit payment early will reduce the amount your beneficiaries can collect after you die. Read on to learn how the ADB rider works and how to receive the accelerated death benefit if you qualify.

KEY TAKEAWAYS

  • If you are terminally ill or have a qualifying medical condition, you can access your life insurance benefit early through an accelerated death benefit rider, which is a type of living benefit rider

  • Death benefit riders for chronic illness, disability, or long-term care specifically may have different names depending on your provider

  • The accelerated death benefit amount is usually only a portion of your full coverage amount and in some cases is subject to fees and interest

Accelerated death benefit overview

An accelerated death benefit is a pretty standard feature of a term life insurance policy. The ADB is a rider, or add-on, to your policy that entitles you to a partial death benefit payment in the event of a qualifying terminal illness.

How death benefits work

The purpose of life insurance is to ensure that your family and loved ones are covered financially in the event of your death. If you have a life insurance policy, you must pay a monthly or annual premium payment to keep the plan active (or in force). Then, when you pass away, whoever you selected as the beneficiary)will receive the funds.

In most cases, the life insurance company pays out the amount of coverage that you purchased in its entirety. For example, if you had a $1 million policy, your beneficiaries would receive $1 million as the death benefit.

However, if you access this money before you die, as an accelerated death benefit, you and your beneficiaries would only receive a portion of the total funds. Most insurers only pay out a portion of the policy’s face value or have a cap. For example, AIG and Lincoln will pay 50% of a policy or up to $250,000 in the case of a qualifying terminal illness. The remainder of the life insurance benefit is paid out after you die to your beneficiaries.

Since you are prematurely dipping into benefits, that means the life insurance proceeds will be reduced later on, so remember to adjust your finances accordingly.

Here are some examples of accelerated death benefit amounts (as a percentage of the original life insurance benefit) for different insurance companies. The rider may come with other restrictions or not be available in certain states.

InsurerAccelerated death benefitQualificationsNotes
AIG50%, capped at a maximum benefit amount indicated on your individual policyTerminal illness diagnosis with 24 months or fewer to live (12 months or fewer in New York)Subject to state variations
Banner Life75%, up to $500,000 (less any policy loan)Qualifying terminal illnessADB is treated as a lien, which accrues interest; subject to state variations
BrighthouseUp to $250,000Terminal illness diagnosis with a life expectancy of 12 months or fewer
Lincoln50%, up to $250kTerminal illness diagnosis with life expectancy of 6 months or fewer
Mutual of Omaha80%, up to $1 millionTerminal illness diagnosis with a life expectancy of 12 months or fewer
Pacific Life100%, up to $500,000 (less any policy loan)Qualifying terminal illnessADB is treated as a lien, which accrues interest; subject to state variations
Principal75%, up to $1 million (less any policy loan)Qualifying terminal illnessADB is treated as a lien, which accrues interest; minimum payment amount is $500
Protective Life60%, up to $1 million (less any policy loan)Terminal illness diagnosis with life expectancy of 6 months or fewerADB is treated as a lien, which accrues interest; additional fees may apply
Prudential70%-100%, depending on illness/circumstancesTerminal illness diagnosis or organ transplant patient with life expectancy of 6 months or fewer; or permanent confinement to an eligible nursing home for at least 6 consecutive monthsSubject to state variations; additional fees may apply
SBLI50%, up to $250kTerminal illness diagnosis with a life expectancy of 12 months or fewerAdditional fees may apply
Transamerica100%, up to $1.5 millionTerminal illness diagnosis with a life expectancy of 12 months or fewerSubject to state variations; additional fees may apply

(Other insurance companies that partner with Policygenius offer an accelerated death benefit, but aren’t listed here since the amounts may vary.)

Information based on policies offered by Policygenius as of 10/5/2020.

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Accelerated death benefit rider

The accelerated death benefit is enacted by a rider, an optional provision to your insurance policy that cannot be purchased alone.

After you’ve chosen a life insurance plan, you may decide you want additional coverage that was not offered in the policy’s original terms. Adding a rider lets you enhance or customize your plan to fit your needs. Since the accelerated death benefit is paid out before death, it falls under the category of living benefit riders.

While some riders will increase your premiums, the accelerated death benefit rider is quite common (offered by all providers on Policygenius), so many insurers include it automatically at no extra cost.

How to qualify for an accelerated death benefit

Accelerated death benefits are triggered in specific circumstances — typically when death is imminent. Terminal illness is the most common reason for applying for the accelerated death benefit. To qualify, the insurance company will require certification from a doctor or medical professional deeming you terminally ill and stating that you have a life expectancy of 12 to 24 months, though some providers may require a life expectancy of six months or less.

Critical illness

While terminal illness is the most common reason for applying for the accelerated death benefit, some insurance providers may pay out the accelerated death benefit if you have a certain critical illness or medical condition that is survivable but will leave you with major medical bills and a shortened life expectancy. These qualifying conditions include:

  • Cancer (including invasive and blood cancers)
  • Heart attack
  • Stroke
  • Lou Gehrig’s disease (amyotrophic lateral sclerosis, or ALS)
  • Kidney failure
  • Major organ transplant
  • Coma or paralysis

Chronic illness

Terminal illness is different from chronic illness, which is defined as a condition that prevents you from performing two of the six activities for daily living — eating, bathing, getting dressed, toileting, transferring, and continence. If your insurance company pays out the death benefit early in the event that you become chronically ill, it may be done either as an accelerated death benefit or through a separate accelerated benefit provision called a “chronic illness rider.”

Long-term care

Nursing homes and eldercare typically fall under long-term care coverage, which you might get through a living benefits rider or through a separate kind of insurance known as a long-term care policy. However, some insurance providers will advance the payment of the death benefit if you have been confined to a nursing home for six months and are expected to remain there permanently. Check your insurance policy or contact your insurance company to confirm if they have such an accelerated benefit rider.

→ Read more about long-term care insurance.

What does the accelerated death benefit cover?

You will receive the accelerated death benefit as a lump-sum payment and it can be used however you see fit to care for yourself and spend time with your family. Beside medical expenses, you can use the money for:

  • Hospice
  • Nursing home
  • Private caretaker
  • Vacation
  • Paying off debt, like a mortgage or car loan

Do I have to pay tax on accelerated death benefits?

Life insurance payouts, like the accelerated death benefit, are not subject to federal income tax, but there are some circumstances in which you might have to pay taxes.

Death benefits are usually paid out as one untaxed lump sum, but if you choose to be paid in installments, the incremental payouts may accrue interest, which can be taxed. Here are other situations in which the accelerated death benefit may affect your taxes.

Estate tax

When the insured dies, their estate will be responsible for a tax if the total value of the estate — assets and valuables, including the value of the life insurance policy — is over a certain amount. As of 2020, only estates worth over $11.58 million will be subject to the estate tax, but if you’re looking for a way to reduce potential estate tax you can look into an irrevocable life insurance trust (ILIT). (The estate tax exemption was $11.4 million in 2019.)

→ Read more about the estate tax here.

Cash-value life insurance

Some permanent life insurance policies have investment-like components that can increase in value over time. If you withdraw or receive more than what you paid into the policy, then you may have to pay taxes.

→ Read more about cash-value life insurance.

Group life insurance

If you have group term life insurance offered by your workplace, any amount over $50,000 that you withdraw as an accelerated death benefit is considered taxable income by the IRS.

→ Read more about taxes and life insurance.

Other fees

While the accelerated death benefit payment itself may not be subject to taxes, some insurance companies will charge one-time fees to enact the rider. Certain companies also treat an accelerated death benefit payment as a “lien,” which accrues interest. So, for example, if you die and your beneficiaries claim the remainder of your policy’s death benefit, the insurer will deduct the amount of the accelerated death benefit, plus interest before distributing the payment.

All Policygenius partners offer the accelerated death benefit rider at no additional cost for most term life insurance policies. If you’re looking for a life insurance policy with an ADB for a specific illness or life expectancy, a licensed agent can help compare the benefits of each company. If you already have a policy and are wondering whether your condition qualifies you to access the accelerated death benefit rider, we can help with that too.

Accelerated death benefit FAQs

What’s the purpose of an accelerated death benefit?

An accelerated death benefit provides money for end of life care to treat terminal illnesses, pay for hospice, or pay off debt.

How much does an accelerated death benefit cost?

An accelerated death benefit rider is a free add-on to a term life insurance policy. If you qualify to access your life insurance benefits before you die, it will not be taxed but you may have to pay fees or interest to your insurer.

When would an insurer pay out an accelerated death benefit?

If you have a terminal illness diagnosis or have been told you have a shortened life expectancy of 6-24 months, you may qualify for an accelerated death benefit. If you are confined to a nursing home or need a major organ transplant, you may also qualify.

Insurance Expert

Rebecca Shoenthal

Insurance Expert

Rebecca Shoenthal is an insurance editor at Policygenius in New York City. Previously, she worked as a nonfiction book editor. She has a B.A. in Media and Journalism from the University of North Carolina at Chapel Hill.

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