Understanding the Accelerated Death Benefit

The primary purpose of life insurance is to provide financial protection for your loved ones after you pass. So, life insurance policies are typically designed to pay out a death benefit to your beneficiaries. But some policies have an additional rider called an accelerated death benefit, allowing you to access that money in certain situations while you’re still alive.

What Are Accelerated Death Benefits?

An accelerated death benefit is a life insurance rider you can purchase to enhance your policy’s coverage. This rider allows you to receive a payout from your policy while living if you meet qualifying conditions, such as contracting a chronic or terminal illness. The amount you receive is often a percentage of the primary death benefit, such as 50 or 90 percent. You can then use the money to cover expenses related to care and treatment.

How to Qualify for an Accelerated Payout

Carefully read your life insurance contract to understand how to qualify for an accelerated death payout within your policy, as conditions vary among insurers and policies.

You can expect some general guidelines across most policies. Typically, you must have a terminal illness that’s expected to result in your death within two years. However, some policies only pay out if your life expectancy is shorter, such as one year.

Other insurers may provide accelerated death benefits if:

• You have a chronic illness that reduces your life expectancy or requires significant care, such as receiving an organ transplant.
• You permanently move into a nursing home.
• You require long-term care to help you perform certain daily living activities.

Potential Pros and Cons of Accelerated Death Benefits

Accelerated death benefits can give you access to financial resources when needed, but you should also consider the potential drawbacks.

Pros

If you become terminally ill, an accelerated death benefit may help you pay for proper care and improve your overall quality of life. Because you can spend the money in any way you choose, you can also use it to cover mortgage payments and other expenses, easing financial strain during an already stressful time.

Cons

Receiving an accelerated payment usually reduces the death benefit your beneficiaries collect when you pass. So, take this into account when choosing your policy’s coverage amount. You may want to purchase a larger amount so your beneficiaries still receive an adequate payout if you use the accelerated benefit option.

You generally need to pay an additional premium for this feature as well. You may also pay a fee for initiating payment under your rider.

Accelerated Death Payouts vs. Policy Loans

If your policy includes cash value, another option for accessing those savings before you pass is to take out a loan against the cash value. Unlike an accelerated death payout, you don’t need a qualifying illness—you can generally take out a loan against your cash value for any reason.

If you have an outstanding loan when you pass, this typically reduces your beneficiaries’ payout. However, unlike tapping an accelerated death benefit, you can choose to pay back the loan.

These two options also have potential tax differences. Accelerated death payouts generally aren’t taxable. Policy loans typically aren’t either as long as you repay them. If you don’t repay the loan, it could become taxable to the extent the loan amount exceeds the premiums you’ve paid.

Adding an Accelerated Death Benefit Rider to Your Policy

Accelerated death benefits can be a valuable addition to a life insurance policy. However, consider the potential drawbacks and added costs when deciding whether to purchase this rider. For a personalized look at your situation, reach out to a financial professional, who can provide additional insight and guidance.

Insurers and their representatives are not permitted by law to offer tax or legal advice. The general and educational information here supports the sales, marketing or service of insurance policies. Based upon individuals’ particular circumstances and objectives, they should seek specific advice from their own qualified and duly-licensed independent tax or legal advisors.

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