Life Insurance 101: What is an accelerated death benefit?
Jeffrey Manola is an experienced life insurance agent and the founder of Top Quote Life Insurance. His mission when he created Top Quote Life Insurance was to provide online consumers searching for life insurance with the absolute best quotes for term life insurance, permanent life insurance, no medical exam life insurance, and burial insurance.
Not only does he strive to provide you with the …
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Written by
Jeffrey Manola
Founder & Licensed Agent
Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products including home, life, auto, and commercial and working directly with insurance customers to understand their needs.
She has since used that knowledge in her more than ten years as a writer, largely in the insur…
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Reviewed by
Leslie Kasperowicz
Farmers CSR for 4 Years
UPDATED: Feb 17, 2022
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Facts You Should Know
An accelerated death benefit rider allows policyholders who are terminally ill to receive a portion of their death benefit early to pay for living expenses, medical expenses, and more
Most insurance companies require that the policyholder has a life expectancy of 12 to 24 months with certification from a doctor or medical professional
While most insurance companies include an accelerated death benefit at no additional cost, you may need to pay a fee or percentage of your death benefit when you receive cash advances
Life insurance is an essential part of financial planning, and it’s necessary to make sure that you have the right kind of coverage. An accelerated death benefit is a popular rider to add to your coverage, and it provides advantages with minimal downsides.
Suppose you’re in the process of buying life insurance. In that case, you can read below to learn about accelerated death benefits, how to qualify for advance payments, and the pros and cons of adding the rider to your policy.
You can also enter your ZIP code into our free quote comparison tool above to find a life insurance policy that includes an accelerated death benefit rider.
What is an accelerated death benefit rider?
The accelerated death benefit provision in a life insurance policy is also known as a living benefit rider or terminal illness rider. It is an optional add-on for life insurance policies that allows policyholders diagnosed with a terminal illness to receive their death benefit early.
In many cases, the cash advances are used to pay for life-saving treatment and financial support. For example, the accelerated death benefit became popular in the late 1980s to help people diagnosed with AIDS.
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What does an accelerated death benefit cover?
An accelerated death benefit covers any expenses that the policyholder incurs. This could include:
Medical expenses
Hospice or nursing home care
Private home care
In addition, policyholders can use the death benefit to pay regular living expenses while they are ill, which is especially helpful for families who rely on the policyholder’s income from work.
Who qualifies for an accelerated benefits rider?
In most cases, the policyholder must be terminally ill to qualify for the cash advances from an accelerated death benefits rider. Each insurance company will have its documentation or proof of illness requirements. For example, many companies require certification from a doctor or medical professional.
Most insurance companies require that a doctor diagnose a 12 to 24 months life expectancy. However, some companies may require a life expectancy of six months or less.
Some insurance companies will also expand their eligibility criteria to include critical or chronically ill policyholders or those who need long-term care. You can contact your insurance company to determine who qualifies for the accelerated death benefit.
How much does an accelerated death benefit rider cost?
Many insurance companies include accelerated death benefits in their life insurance policies at no additional cost. However, some companies may require that you formally opt-in to the rider, even if you don’t need to pay extra for it.
With that being said, you may need to pay a fee or percentage of the death benefit if you need to use the accelerated death benefit. Therefore, you should read the fine print on your policy and discuss the details with your insurance company.
In addition, some older individuals who have had their life insurance policy for a long time may not have the accelerated death benefit included in their policy. These policyholders should contact their life insurance company to see their options to have the rider added if it is not already included. However, they may see an increase in their life insurance rates.
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What are the pros and cons of an accelerated benefit rider?
Of course, the pros of an accelerated death benefit are that it provides income for terminally ill individuals during a very stressful time in their life. In addition, the rider costs little to no money to add to your life insurance policy.
There aren’t many disadvantages of the accelerated death benefit rider. However, it is crucial to know the details of your life insurance policy and the process of using your death benefit early. For example, you should remember that taking a portion of your death benefit early leaves a smaller death benefit for your beneficiaries.
In addition, most accelerated death benefits are income tax-free, but some policyholders may face special tax requirements, such as FATCA reporting for individuals who have assets outside the United States. So, make sure to consult a financial advisor or tax professional for help with large lump sum payments.
Finally, your eligibility for Medicare or Social Security benefits could change due to payments from an accelerated death benefit. You should discuss the details with your insurance company and a Medicare caseworker.
Overall, if the accelerated death benefit is included in your policy, it is well worth it to have the option available if you become terminally ill. However, if your life insurance company charges fees for cash advances, consider other opportunities, such as cash value loans and viatical settlements.
If you’re looking for a life insurance policy with an accelerated death benefit rider, enter your ZIP code into our free quote comparison tool below to find a life insurance company near you.
