What Is an Accelerated Death Benefit Rider?
Why is an accelerated death benefit rider automatically included on most policies?
Life insurance companies are not out to rip people off. They are in the industry to help those when they need it most, essentially, when death is on the horizon.
Before these accelerated benefits were an option, desperate insured individuals began selling their policies to the highest bidder.
Basically, someone with a terminal disease would sell his or her life insurance policy at a discount so they could have money to pay medical bills and provide for their families. Then when that individual died, the buyer would cash in the full amount of the policy. This arrangement is called a viatical settlement.
Example:
Let’s say it’s the year 1980 and Jane Smith has a $500,000 life insurance policy, but accelerated death benefit riders have not been thought up yet.
She is diagnosed with stage IV pancreatic cancer and has been given 8 months to live. She needs money to pay medical bills and would like to go on a vacation to enjoy the remainder of her life as much as she can.
John Doe agrees to purchase Jane’s $500,000 policy for $150,000 cash and will keep paying her premiums. He is basically investing into her short life expectancy.
When Jane does die, John will receive the full $500,000 death benefit. Jane’s original beneficiaries receive nothing.
These viatical settlements were rare in the United States up until the late 1980s, when the AIDS epidemic peaked. Many terminally ill AIDS patients needed money for treatment.
In 1993, the National Association of Insurance Commissioners (NAIC) developed the Living Benefits Model Act. In the creation of this act, it was suggested that insurers should be able to offer accelerated benefits to policyowners if they discover the policyowner plans on viaticating, or selling, his or her policy. It was, however, deemed unfair not to offer this option to all policyholders.
It was then determined that these accelerated benefit options be added into contracts. This made it possible for insured individuals to use a portion of their policy’s death benefit when it was needed most without selling it off at a discount.
Most of the life insurance companies Quotacy works with include the accelerated death benefit rider automatically on their life insurance products.
Some insurance companies forgo riders in order to make their process faster and premiums a little cheaper.
We provide individual overviews of each of the life insurance companies we work with here: Life Insurance Company Overviews. Choose a life insurance company to read about their features and benefits. On these pages under the “Policy Riders” section, it will say whether or not the company offers an accelerated death benefit rider.
If you’re ready to apply, there’s an easier way to find out if the policy you choose has an accelerated death benefit rider option.
When you apply for term life insurance on Quotacy, the individual company quotes also include the riders that are available. Just hit the drop-down “Ratings and Info” tab.
You can start by exploring costs with our term life insurance quoting tool. Or learn more about different life insurance riders here: Types of Life Insurance Riders.
