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 rider (ADB), also known as a terminal illness benefit, is a living benefits rider that gives you access to some of your life insurance proceeds when you have a shortened life expectancy. The accelerated death benefit rider is a common policy add-on and is often included in your policy at no extra cost.

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 collect after you die. Read on to learn how the ADB rider works and how to qualify for accelerated benefits.

Key Takeaways

  • If you are terminally ill or have a qualifying medical condition, an accelerated death benefit rider lets you access your life insurance proceeds early

  • The funds are usually a portion of your full coverage amount and sometimes subject to fees and interest

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

What is the accelerated death benefit?

An accelerated death benefit is a standard feature of most term life insurance policies. 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. In most cases, the life insurance company only pays a portion of the death benefit to you.

How does the accelerated death benefit work?

The purpose of life insurance is to ensure that your family and loved ones are covered financially when you die. If you have a life insurance policy, you pay a monthly or annual premium to keep your plan in force. Then, when you pass away, whoever you selected as the beneficiary receives a tax-free, lump-sum payment.

If you access this money before you die using an accelerated death benefit rider, you and your beneficiaries only receive a portion of the total funds. For example, AIG and Lincoln will pay you 50% of your policy’s face value or up to $250,000 if you have a qualifying terminal illness. The remainder of your life insurance benefit would go to your beneficiaries after you die.

Since your life insurance proceeds will be reduced later on, remember to adjust your finances accordingly.

How life insurance companies treat accelerated death benefits

All of Policygenius’ partner life insurance companies offer the accelerated death benefit rider without an additional charge. Below are the ADB amounts offered by each (as a percentage of the total death benefit). The rider may come with other restrictions or not be available in certain states. 

INSURANCE COMPANYACCELERATED DEATH BENEFIT
AIG50%, up to a maximum indicated in your policy
Banner Life75% or $500,000, whichever is lesser
BrighthouseUp to $250,000
Lincoln50%, up to $250k
Mutual of Omaha80% or $1 million, whichever is lesser
Pacific Life100% or $500,000, whichever is lesser
Principal75%, up to $1 million
Protective Life60% or $1 million, whichever is lesser
Prudential70-100%, depending on illness/circumstances
SBLI50%, up to $250k
Transamerica100% or $1.5 million, whichever is lesser

Based on policies offered by Policygenius as of 2/8/2021.

Accelerated death benefit fees and restrictions

Accelerated death benefits do come with some limitations. If you have permanent life insurance and have taken a loan against your policy, your accelerated benefit will be paid to you minus any outstanding loan amount. Limits on the benefit amount and the medical status required to qualify also vary by provider and sometimes depending on where you live

Some life insurance providers charge a one-time processing fee to enact the ADB rider (typically around $150). Others treat the accelerated death benefit payment as a lien, which accrues interest. So when 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.

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Who qualifies 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 to apply for the accelerated death benefit. To qualify, the insurance company requires certification from a doctor or medical professional deeming you terminally ill and stating that you have a life expectancy of 12 to 24 months (some providers may require a life expectancy of six months or less ). 

However, many providers also offer accelerated benefits for critical illness, chronic illness, or long-term care. Always contact your insurance provider to confirm which living benefits they offer and how to qualify for each.

Critical illness

Some insurance providers pay out if you have a 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, for the purposes of activating the rider, 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.

Your insurance company may pay an accelerated death benefit for chronic illness through an ADB rider or a separate 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 a separate 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. 

→ Read more about long-term care insurance

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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. Besides medical expenses, you can use the money for:

  • Hospice

  • Nursing home

  • Private caretaker

  • Paying off debt, like a mortgage or car loan

Do I have to pay tax on accelerated death benefits?

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

Estate tax

When you die, your estate is subject to 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 2021, the estate tax only applies to estates worth over $11.7 million. If you’re looking for a way to reduce potential estate taxes you can look into an irrevocable life insurance trust (ILIT). 

→ Read more about the estate tax

Cash value life insurance

Some permanent life insurance policies have investment-like components called the cash value that can increase in value over time and from which you can withdraw funds. If you withdraw more money than you paid into the policy, then you may have to pay taxes.

→ Read more about cash value life insurance

Incremental payments

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.

→ Read more about taxes and life insurance

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 you 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, an agent 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.

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