What is an Accelerated Death Benefit?
An accelerated death benefit is a life insurance policy feature that lets you access some of the policy benefits while you’re still alive. Generally, you can use an accelerated death benefit after getting diagnosed with a terminal illness. The money you use from your accelerated death benefit gets deducted from your policy’s death benefit.
What this benefit can do
Accelerated death benefits are designed to cover medical expenses and additional care required in the last season of your life. The thinking goes that there’s no reason to leave your family with a heap of medical debt that they will then need to pay off.
Instead, an accelerated death benefit pulls from your life insurance policy’s death benefit, the amount your policy will payout to your beneficiaries when you die. By using some of that money to cover medical necessities while you’re alive, you get a more comfortable experience and avoid leaving medical debt behind.
Getting an accelerated death benefit
Many life insurance policies automatically include an accelerated death benefit. If not, you may have the option to add an accelerated death benefit to your policy as a rider, an additional policy feature that slightly increases the cost of your coverage. Review the details of any policy you’re considering to find out if it can or already does include an accelerated death benefit.
Once you have a policy with an accelerated death benefit, you will need to meet certain qualifications in order to activate it. Usually, after diagnosis with a terminal illness or certain chronic conditions, you can show proof from your doctor to your insurance provider in order to start tapping into your accelerated death benefit (which is also sometimes called a terminal illness rider).
In other words, if a medical professional has told you that you have a significantly shortened life expectancy, you may be able to use your policy’s accelerated death benefit rider. Most insurance companies require a life expectancy between six and 24 months to use an accelerated death benefit (as attested by a medical doctor).
How this benefit works
Generally speaking, you won’t receive the full death benefit promised by your policy when using this benefit. Instead, your insurance provider will issue you a portion of the death benefit (e.g., 50%).
You might receive your accelerated death benefit as a lump sum or in installments, tax-free. Review the specifics of your policy to understand how it would work in your specific situation.
The amount you get toward your accelerated death benefit will be subtracted from your overall death benefit. Your insurance provider may also reduce your death benefit by any applicable fees or interest.
In most cases, an accelerated death benefit leaves some of your life insurance death benefit untouched to go to your beneficiaries after you die. And if the insured makes a miraculous recovery, the benefit money does not need to be repaid. Rather, the amount accelerated will be deducted from the final death benefit, with some companies charging interest as well, if it is ever paid out, depending on the terms of coverage.