What is an accelerated death benefit?
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Updated 12:17 p.m. UTC Sep. 27, 2023
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Key Points
- An accelerated death benefit can give you access to a portion of your life insurance death benefit if you’re diagnosed with a terminal or chronic illness.
- You can use your accelerated death benefit to pay off medical bills and other costs.
The primary goal of life insurance is to provide financial protection to your loved ones after you pass away. But there are certain circumstances under which you can access your death benefit before you die. One way you may be able to do so is if you have a terminal or critical illness and a permanent or term life insurance policy with an accelerated death benefit rider.
Here’s what you need to know about an accelerated death benefit, including what it is and when you can use it.
Ethos
What are accelerated death benefits?
An accelerated death benefit is a life insurance policy feature that allows you to access part of your death benefit — often 25% to 95% — if you meet certain medical criteria, generally the diagnosis of a chronic or terminal illness.
How an accelerated death benefit works often depends on the insurer, policy and qualifying medical condition.
Accelerated death benefits for terminal illness
This type of rider is often included in term policies and permanent policies, such as whole life insurance, at no additional cost, though availability can vary by insurer and policy.
Most often, the rider stipulates that the insured can access their death benefit if they have been diagnosed with a terminal condition and are expected to live for only six to 12 months, says David Hillelsohn, president of DHill Financial, an independent insurance firm.
Accelerated death benefits for chronic illness
This type of rider is most commonly available for an additional fee, though it may be included in some policies. To qualify, a medical professional must certify that your diagnosis prevents you from performing two out of six daily tasks: eating, dressing, bathing, continence, toileting and transferring.
How does an accelerated death benefit work?
Accelerated death benefits work by giving you access to a portion of your life insurance policy death benefit if you’re diagnosed by a medical professional with a chronic or terminal illness. If your condition meets the eligibility requirements as outlined in your policy, then you can use your death benefit to cover expenses.
Let’s say you receive a terminal cancer diagnosis with a life expectancy of 8 months. You need help paying your bills and mortgage since you can no longer work.
Your policy will outline the details of how to claim an accelerated death benefit and restrictions on using the money (usually, there are none).
How is an accelerated death benefit is paid out?
How your accelerated death benefit is paid out will also vary by insurer and the type of claim. Accelerated death benefits for a terminal illness are often paid out as a lump sum, while those for a chronic illness may be paid out monthly.
If you’re not sure if your policy has an accelerated death benefit or how the death benefit is paid out, contact your agent directly. They can review your policy details and advise you on whether or not you have this particular ride, the eligibility requirements, how to file a claim and the payout structure.
If you’re shopping for coverage, make it a point to ask about accelerated death benefit riders, specifically if they are included in your policy or if you need to add them.
Benefits of an accelerated death benefit rider
Being diagnosed with a chronic or terminal illness can be an emotional and scary time for you and your loved ones. Knowing these riders are included in your life insurance policy can make the financial fallout of this type of diagnosis easier to manage. The accelerated death benefit can help pay for things like:
- Hospital bills.
- Experimental treatment.
- Care of dependents.
- Daily living expenses.
Drawbacks of an accelerated death benefit rider
Accelerated death benefits, especially those that are automatically included in your policy, can provide financial assistance when you need it the most. However, it’s important to note that any portion of your death benefit that you receive as part of an accelerated death benefit claim will be deducted from the payout your beneficiaries receive once you pass. This may be problematic if your family needs the death benefit to manage living expenses or other costs and debts left after you pass.
Who should take an accelerated death benefit?
Individuals with a family history of terminal illnesses may want to opt for an accelerated death benefit option.
For instance, if a specific type of cancer with a poor prognosis is common in your family, you may want the accelerated death benefit because you are at a higher risk for developing the disease than those without it in their family history.
Likewise, if you have a family history of chronic illness, like Alzheimer’s disease, you may also want to consider this type of accelerated death benefit. Before you do, read the policy language closely to see how chronic illnesses are treated.
Accelerated death benefit FAQs
Insurers specify the amount of accelerated death benefit, which is typically listed as a percentage of the amount and often comes with a cap, say $1 million. States may also set their own provisions on the amount of accelerated death benefits.
Accelerated death benefits for terminal illnesses are generally not taxable, but it’s always a good idea to speak to a tax or financial professional who can provide insights about your unique circumstances and the best life insurance options for you.
An accelerated death benefit rider is a life insurance policy provision that states the insured can access their death benefit while they are alive if they have been diagnosed with a chronic or terminal illness.
In many cases, accelerated death benefits are automatically included in policies, but depending on the insurer and policy, you may need to pay extra for this type of rider.
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