Accelerated death benefit: just the first two words of that term is enough to give you the heebie-jeebies, huh? But, before you get all weirded out by the name alone, thinking your insurer wants to send you off to an early grave, know that this kind of life insurance benefit is actually a good thing! It’s a terminal illness rider that pays out a portion of the life insurance money if the policyholder gets diagnosed with a terminal illness. Check out our list of FAQs below and learn more about this life insurance rider where payouts can occur while the insured is still alive.
Life insurance riders are additional benefits that you can pay to add to a basic life insurance policy. An accelerated death benefit rider is a feature that’s available as part of many types of life insurance policies—term life, whole life, etc. It allows you to get some (or all) of your life insurance money, EARLY, to use while you’re still alive. The condition is that you have a terminal illness with a life expectancy of six months to two years. The payout varies from insurer to insurer and it’s always a percentage of the death benefit that’s in your contract, and, in some cases, the full amount—subject to potential fees and interest.
The answer here is simple. The whole point of life insurance is to make sure your loved ones are taken care of—financially—when you die. So, knowing that you’re dying, it’s only fair that you’re given this money, early, to help with medical bills and the cost of making final arrangements, etc.
Assuming your insurance policy has an accelerated death benefit, and you’ve signed up for it, you should get quick access to your cash if you get a terminal illness with a less-than-two-year life expectancy. Life insurer, AIG, for example, pays up to $250,000 or the face value of your policy, whichever is less, if you have a qualifying terminal illness. And the scene looks similar with most insurers. After that first round of money’s been paid, the remaining $$ would then go to your beneficiaries when you die. But remember, since you did get an early payout, the money your beneficiary gets will be reduced (womp, womp). So, keep that in mind and balance your books accordingly.
Situations that qualify for an accelerated death benefit vary. But here are some common ones that are covered under most of these riders:
Also, marital status, income, and geographical location are usually not factors in determining your eligibility for this benefit.
There are times when this benefit might not be the right choice. For example, if getting money via an accelerated death benefit would interfere with any Medicaid or other public assistance benefits. Also, if there could be any potential tax consequences… (accelerated death benefits usually aren’t subject to federal income tax, but there are certain situations where you might have to pay taxes). Anyway, it’s always a good idea to stay on the right side of the law so that you don’t inadvertently screw over loved ones during an already tricky time. Your safest bet? Speak to a tax advisor before mixing and matching benefits and/or playing fast and loose with your taxes.
If it turns out that getting a terminal illness rider isn’t the best idea for your unique situation, you still have options:
So there you have it: everything you’ve wanted to know about accelerated death benefit riders. Heads up: to qualify for an accelerated payout, your insurance company will more than likely need a certified note from your doctor or a medical professional saying that you’re ill (unfortunately, fakers exist).
Hopefully, you’ll never need to cash in on this rider but we hope you found this info helpful—just in case life leads you or a loved one down an unexpected path.