What is an Accelerated Death Benefit?

You can start receiving benefits from your life insurance policy before you die. It’s called the accelerated death benefit, and it's a common rider on many life insurance policies.

Benefits from an accelerated death benefit rider can be used for medical expenses if you’re diagnosed as terminally ill. Benefits you receive before dying get deducted from your final death benefit and sometimes can incur fees and interest. 

Learn more about an accelerated death benefit now with Benzinga’s guide.

What is an Accelerated Death Benefit?

An accelerated death benefit is a rider on most life insurance policies that allows the policyholder to receive their death benefits while they’re still alive. The accelerated death benefit is typically used to cover medical expenses for policyholders with a terminal illness.

The accelerated death benefit (ADB), also referred to as a terminal illness benefit, is a living benefits rider that allows you to access some of your death benefits before you die, if your life expectancy is shortened. 

An accelerated death benefit is a commonly used add-on and often comes at no extra cost. An accelerated death benefit should not be confused with riders for chronic or critical illness, or long-term care. 

How It Works

The purpose of a life insurance policy, of course, is to make sure your family is taken care of after you die. But what if you're diagnosed as terminally ill and need some of the money now? You can access your death benefit early if you have an accelerated death benefit rider.

A common ADB policy might payout 50% of the face value to help cover medical costs when you need it most. So, if you have a $500,000 policy, you could get as much as $250,000 while you’re still living and incurring high medical costs.

There are restrictions, of course. Let’s say you have a whole life insurance policy and you’ve already taken out a loan against it. Now, that 50% ADB would not be $250,000 but $250,000 minus the amount of money you’ve already borrowed. The amount you borrowed is deducted immediately from your ADB, so the final death benefit your beneficiaries receive remains the same $250,000.

*Some insurance companies pay as high as 75% of your total death benefit toward your ADB, while others prefer to pay in monthly installments. When purchasing your rider, check with your insurance company on how they payout in case of an accelerated death benefit. 

While in most cases you’ll need to add ADB as a rider, many insurance companies these days add ADB as a standard feature to their permanent insurance policies, with no extra charge to the policyholder. Some insurance companies now even offer ADB on term life policies, although these typically don't come standard but are offered as a paid add-ons instead.

ADB for the critically or chronically ill and long-term care

ABD can also help you foot the bill for care over time, including long-term care. Here’s a breakdown of when ABD may be approved to pay for your care.

Critical Illness

Although being terminally and critically ill are not the same thing, some insurance policies will pay out for critical illness. If your condition is diagnosed as critical, meaning you have a serious medical condition that leaves you with major medical bills, but is nevertheless survivable, your insurance company may approve you for an ADB. 

Some qualifying conditions include:

• Heart attack
• Cancer
• Kidney failure
• Stroke
• Coma
• Paralysis
• ALS

Chronic Illness

Chronic illness, defined as a condition that leaves you unable to perform 2 of the 6 main activities for basic living, can also sometimes be a means of approval for ADB. 

These 6 activities include:

• Eating
• Bathing
• Dressing
• Transferring
• Toileting
• Continence

Long-Term Care

Typically, to be approved for benefits for long-term care requires a long-term care rider or even a separate long-term care policy. In some instances, insurance companies will approve ADB if the policyholder is confined to a nursing home for a period of six months or longer, and the diagnosis is to remain there permanently. 

What It Covers

An accelerated death benefit covers medical expenses if you’ve been diagnosed as terminally ill, but in some cases it covers more than just medical costs. 

On top of medical expenses, ADB can be used for:

• Nursing homes
• Private caregivers
• Hospice
• Paying off debts like car loans and mortgages

Because life insurance is not income, the benefits are tax free. This includes ADB. There are some circumstances, however, where you might have to pay taxes. One example of this is on the per diem basis. 

The per diem basis are payments made that are not directly related to actual expenses. If the maximum daily amount is exceeded, a portion of the benefits may be subject to taxation.

While it's true that proceeds derived from a life insurance policy are tax free, if the value of your estate is over $11.7 million and you have a life insurance policy, then it becomes part of the estate and is subject to estate taxes. Again, this only applies to those estates valued at $11.7 million or more.

Who Needs an Accelerated Death Benefit?

If you’ve got a permanent life insurance policy, like whole life, and you’re diagnosed with a terminal illness, you can receive an accelerated death benefit. Of course, the people who need a benefit like ADB are those who are in need of some cash. That’s the great thing about a permanent life insurance policy: it has cash value. Such cash value can often be utilized in many ways. Here, it can serve as an accelerated death benefit.

Sometimes it isn’t the terminally ill person themselves, the policyholder, that needs the money. Often its family members who have to take care of the policyholder. It’s not uncommon for a family member to become the primary caregiver of a terminally ill patient and have to quit their job to take care of them full time. In cases like this, the accelerated death benefit — even though it’s paid to the policyholder — benefits the family member or primary caregiver.

Remember, to receive an ADB you must first be diagnosed as terminally ill by a licensed physician. You must be approved by your insurance company. It’s a process, and just because you might be getting on in years and your health is beginning to fail, that may not qualify you as terminal ill. Terminally ill status must be approved by your insurance company for you to qualify for an ADB.

What Happens After You Accept an ADB?

Except in the cases where an estate is of extremely high value ($11.7 million or more), just like life insurance is tax free, so too is an accelerated death benefit. And ADB isn’t free money, however. It’s deducted from your overall death benefit (typically 50%), minus any loans you might have already taken out on the policy.

After you accept an ADB, your final death benefit (the amount paid to your beneficiaries upon your death) is decreased to reflect the ADB payment. Both are tax free. The best part for you, in your time of most need, many insurance companies will allow you to stop making payments on your premiums. Check with your insurance company for your particular benefits.

Compare Life Insurance Companies

Whether or you qualify for accelerated death benefits or not depends on your insurance company and your individual life insurance policy. Some insurance companies require you add the ADB rider at the time you purchase your policy, while others allow you to add it on later. The amount your insurance company will payout on your ADB also depends on the policy.

Come find out more about insurance companies and their policies on ADB from Benzinga, the life insurance experts.

Accelerated Death Benefits and Beyond

If you’ve been diagnosed as terminally ill, in some cases if you’re chronically or critically ill, or have been in a nursing home or hospice for 6 months or more and it is going to be permanent, you may qualify for an accelerated death benefit. 

Qualifying for an ADB depends on your insurance company and your particular policy. Whether you’re looking for an ADB or not, Benzinga has a wide array of informative articles on life insurance policies of all types. 

Frequently Asked Questions