What is an Accelerated Death Benefit?
An accelerated death benefit is an add-on to a life insurance policy (also called a rider) initiated by the policyholder to access the death benefit while still alive. This allows the policyholder to access a cash lump sum, generally used for medical expenses and/or long-term care services. Also known as a terminal illness benefit, it is usually offered by life insurance companies at no cost.
Do I Qualify?
The qualifications vary per policy and insurer, but the policyholder needs to be affected by a terminal illness. Medical records are collected by the life insurance company upon the accelerated death benefit application. Medical conditions such as a cancer, heart attacks, organ failure and other critical illnesses are good examples. If the policyholder’s life expectancy is 24 months or less, the ADB application is usually approved.
What are the Pros and Cons?
The benefits of opting for an accelerate death benefits are straightforward:
However, there are few things to consider as well:
What are the Tax Implications?
As most important financial decisions, it is vital to consult with a financial professional. Although accelerate death benefits are exempt from federal taxes, there could be an impact on the policyholder’s estate tax and more. Since the tax implications are very similar to a life settlement, we recommend reading our dedicated page regarding the issue.
Do I have Other Options?
A policy can be completely surrendered to the life insurance company. The premiums payment would stop along and the insurer will provide a surrender value for the policy.
Additionally, a life insurance policy can be sold entirely to investors. This process is called a life insurance settlement. Unlike an accelerated death benefit rider, a life settlement is the sale of the entire life policy. All premiums payments and death benefit are transferred to the buyer upon the sale. On average, the selling price can be up to four times the surrender value, which can make a substantial difference.
Both term and whole life policies qualify, and policyholders can get a free estimate using our calculator.
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