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What Is an Accelerated Death Benefit and How Does It Work?

There are many ways to customize your life insurance. With an insurance rider, you can ensure you can skip a medical exam or ensure an income for your beneficiaries. One of the most common riders on life insurance is an accelerated death benefit.

What is an Accelerated Death Benefit Rider?

An accelerated death benefit (ADB) is a type of rider that helps you while you’re still alive. If you need to use your insurance money for an emergency, an ADB can guarantee access. Why would a life insurance company give you money while you’re still alive? Most of the time it’s so people can get end-of-life care.

How to Qualify for an Accelerated Death Benefit

Accelerated death benefits don’t replace health insurance. It can’t be used if you just get sick or even if you end up in the hospital. In order to qualify for an accelerated death rider, policyholders need to be diagnosed with a catastrophic illness. What is a catastrophic illness? That can vary from person to person and from policy to policy.

Accelerated death benefits are like emergency funds: they’re only meant to be used for worse-case scenarios and (ideally) for a short period of time. Most death benefits will kick in if a person has a terminal illness that severely shortens their life expectancy. A person usually qualifies if their doctor only expects them to live another two years or less. 

You might also need to take out a rider if you have an extraordinary medical issue. Sometimes health insurance can’t cover the cost of an organ transplant, 24-hour care, or long-term life support. To cover these emergencies, you might be able to pull out money from a death benefit rider. However, not all ADBs will cover these kinds of longer-term medical emergencies. 

Long-Term Care Riders

Sometimes providers will offer both accelerated death benefits and long-term care riders. Long-term care covers expenses such as at-home nursing or nursing home care. You’ll need to have both riders to qualify. Before you settle on a rider, double-check to see if your ADB covers both terminal and long-term care. 

Whether it’s long-term or just a short while, medical care can rack up a lot of costs. To offset these, policyholders take out money from their insurance policy. However, they’ll need to make sure they qualify for their accelerated death benefit.

Applying for an Accelerating Death Benefit

In order to qualify for an accelerated death benefit, you’ll need to submit a few forms to your insurance provider. This should include proof of a diagnosis and usually includes a medical release. A medical release gives your official consent and allows your provider to look through your medical records. You can request to see the report and talk with your doctor to make sure everything is up-to-date and correct.

Alternatives to an Accelerated Death Benefit

Not everyone can take out their policy early. If you do need access to your policy funds, but don’t qualify for an ADB, see what loan options your provider offers. Policy loans have low interest and are usually tax-exempt. They are also very easy to get since they don’t have requirements like bank loans. 

If you don’t want a loan and can’t get an accelerated death benefit, you can try cashing out your policy. In exchange for ending your plan, your provider will give you the cash value of your plan. (For the most part, only permanent and whole life policies build up cash value.) This is usually a last resort since not only will you lose your coverage, but there’s a chance you’ll be taxed on any money you receive.

How Much Money Can I Get From an Accelerated Death Benefit?

Your insurance payout will depend on a few things. Most providers base an ADB on what your policy’s final payout is worth. If your policy is worth $50,000, your provider might offer you 50%, or $25,000. However, keep in mind that whatever the money they offer you will come out of the final benefit. 

If you’re given $25,000 for your accelerated death benefit, that’s $25,000 that won’t go to your beneficiaries. If your provider offers you the full price of your policy, there will not be any payout left for your beneficiaries. 

Many insurance companies offer accelerated benefits, each with different rules and policies about benefit payouts. Some may pay you in installments, but most will offer you a lump sum within a few weeks of getting your application. Because you’re taking your money out of your policy, you might need to pay a small fee or tax. However, if you are diagnosed with a terminal illness, any taxes will be waived. 

When to Get an Accelerated Benefit Rider

There are many different types of life insurance, but they all have one thing in common. Each one helps policyholders and their families prepare for the worst. An accelerated benefit rider is unique because it helps both the policyholder and their beneficiaries.

Terminal illnesses can be financially devastating. Between final treatments, medical care, pain management, and hospital stays, policyholders can end up paying a fortune. An accelerated death benefit covers these costs while still covering funeral expenses. These riders protect your and your family’s finances, preventing them from being bled out by expensive end-of-life medical care.

There are very few downsides to an accelerated death benefit. Most of the time, they are automatically included in policies or can be added for free. If you want to ensure your quality of life, look into an accelerated death benefit. Before buying a policy, or adding on an ADB rider, check your options with different providers. You can use an online comparison tool or website like Versured.

Key Takeaways:

  1. An accelerated death benefit allows policyholders to take out money from their life insurance policy. They can use this to pay for medical procedures, treatments, or end-of-life care.
  2. Policyholders qualify for an accelerated death benefit when diagnosed with a terminal illness or a condition that requires expensive, immediate care.
  3. Though some policies automatically include an ADB, it may need to be added by the holder. A policyholder will also need to check if they need to add a second long-term care rider to cover medical costs.
Blog Life What Is an Accelerated Death Benefit and How Does It Work?

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