What is an Accelerated Death Benefit?

Did you know that even if you have a terminal illness, you are eligible for financial coverage through many insurance policies? It’s called an ‘accelerated death benefit’. Typically, it’s included in many insurance policies. If not, you can add it as a rider. Is accelerated death benefit included in your policy? If not, you should seriously consider including it in your life insurance policy. We often take term life insurance as a tool that only pays out when we die, but we forget that we could suffer a serious and lengthy illness before our death. Have you ever thought what would you do if something such happens to you? Who would pay for the expenses? Unfortunately, a terminal disease is progressive and involves numerous expenses, that increase with time.

Why having an accelerated death benefit is beneficial?

Benefits like Accelerated Death, ADB, or Living Benefits are usually included in permanent life insurance policies - such as universal, variable, or whole life. Sometimes, they are not included in term life policies. However, if you wish, you can purchase one separately as a rider. Accelerated Death Benefit riders come in a variety of packages. The payments and terms vary from company to company and obviously as per your individual condition. However, in case you don’t have an accelerated death benefit in your policy, and you contract a terminal illness, you may still be able to get this benefit from your insurance provider. Essentially, if you have an accelerated death benefit included in your policy and you contract a terminal disease, you can collect against the amount of death benefits on your policy. However, if you are chronically ill, either you or your beneficiary can collect the payment before you die or remains chronically ill. Depending on the insurance company, the payment that you’d receive could either be a portion or total of the death benefit. This sum, again depending on the insurance company, can be paid either monthly or in a lump sum. Usually, this amount varies from 25%-95% of the total death benefit. Also, if you die before the accelerated death benefits are used completely, the remaining balance would go to the individual who is the beneficiary.

How do you qualify for accelerated death benefit?

Essentially, in order to qualify for accelerated death benefits, you should conform to some or all of the following conditions:

1. You have contracted a terminal illness and are expected to pass away within 2 years 2. You’ve been diagnosed with a critical illness, which will drastically reduce your lifespan, and you need to be under extensive medication 3. Your illness is so critical that you’d need special care and treatment like an organ transplant 4. You’d require daily care and help to do necessary things like bathing and using toilet

How much does accelerated death benefit cost?

Essentially, the costs depend on the company and on the policy. The costs will be included if the coverage is already included within your health insurance policy. However, if not, and you want to purchase the coverage as a rider, you’ll have to either pay a percentage of the total death benefits or a set of fee. Also, there may be an added administrative cost to get the benefits implemented, which would be somewhere around $250 for most companies.

Are accelerated death benefits taxable?

Technically, accelerated death benefits are not taxable and are usually treated the same way as death benefits by the federal government. However, the tax code is quite specific about who would be benefitted and who wouldn't. In order to have the benefit tax exempt, you have to be terminally ill and where death is expected within 2 years. Else, you must be chronically ill on annual basis. An accelerated death benefit should never be treated as long care types of coverage. Rather, as a last resort to appendage for the medical costs that aren’t covered by the regular policy. In some situations, the financial support you receive may or may not be considered as income by Medicaid.