All experts and beneficiaries aggress that life insurance is a crucial investment for anyone. It provides financial security to your family upon your demise. But do you know your life insurance can come through for you even when you are still alive with the accelerated death benefit rider? An accelerated death benefit (ADB) is a living benefit, meaning you can access it while you’re still alive in case of a severe illness.

While ADB is a highly valuable feature policyholders should know, few people understand what it entails and how it works. We’ll help you understand more about the accelerated death benefit and how you can use it to support yourself and your loved ones during difficult circumstances.

Let’s start from the basics.

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What Is an Accelerated Death Benefit Rider for Life Insurance?

Accelerated death benefit is a rider on life insurance that allows you to use a part of your death benefit when diagnosed with a chronic or terminal illness. Maybe your insurer has mentioned that you can add a rider to your life insurance, or your friends keep telling you they have a rider on their insurance. However, you can’t fully understand the meaning of a rider in life insurance. A rider allows you to add a provision to modify or enhance the coverage of a base policy. The modification helps you customize your policy to suit your needs and circumstances better.

In layman’s language, a rider is an added feature that will allow you to enjoy more benefits from your policy than you would with the base policy. Riders come in various forms, and choosing one that meets your needs is important and dependent on your preference. A rider comes at no additional cost and benefits you and your loved ones since it comes as a risk protector for the future.

What Is the Purpose of an Accelerated Death Benefit Rider?

No one likes putting a financial strain on their loved ones. Critical and terminal illnesses don’t follow a timetable. So you never know when they’ll come knocking at your door. However, an accelerated death benefit helps you prepare financially in case you face a terminal illness or need funds for long-term care expenses.

Terminal illness, chronic diseases, or critical medical conditions can be emotionally and financially burdensome, especially for caregivers. With accelerated death benefits, you can ease the financial burden on your loved ones that may come from paying your medical expenses out of pocket. This way, they can give you the attention you deserve during the difficult time you’ll be going through.

Accelerated death benefit rider is like a loan on the death benefit, and it will reduce the funds your beneficiaries will receive when you die. Depending on your insurance company and whether you have permanent or term life insurance, the accelerated death benefit can either be a term or permanent rider.

How Do Accelerated Benefits Work?

When you’re diagnosed with a terminal illness, you may be eligible to receive a portion of your death benefit. First, you’ll check the instructions on your policy on whether you’re eligible and how to apply for ADB, or you can reach your insurer for details. You’ll file a claim like you would any other claim.

The person responsible for initiating the process of accessing the ADB is the insured and not the beneficiary. Depending on your insurer, the policy should be active for at least two years. You’ll probably get a lump sum if you’re claiming terminal illness. Otherwise, it’s mostly payouts for chronic illness.

One good thing about the money you will receive is that most insurers allow you to use it without restriction. It can help cover medical expenses, pay off debts, pay your physician morgage rates, or make other financial arrangements for your loved ones. The conditions for accessing the accelerated death benefit will vary depending on the insurer and the policy terms.

Once you receive the accelerated death benefit, you’ll start paying a premium based on the new face value instead of the original amount. For example, if you have a life policy of $500,000 and you decide to accelerate $200,000, your new premium will be $300,000.

Keep Reading: How Much Life Insurance Do You Need?

How to Access an Accelerated Death Benefit

To access an ADB, you must meet specific eligibility criteria your insurance provider sets. The criteria may vary depending on the type of accelerated death benefit rider you have.

Before we look at the requirement to access ADB, let’s first understand the two riders that typically go along with this ADB rider.

Terminal Illness Rider

Terminal illness rider is the prevalent type of ADB. This rider allows you to use part of your death benefit if you’re diagnosed with a terminal illness. Most insurance providers specify the timeframe of the illness, usually 12 months or fewer. However, some set the life expectancy to two years or fewer.

Terminal illness is a disease that is ultimately fatal and has no known cure or treatment. You can use a terminal illness rider to cover medical expenses, quality-of-life expenses, or any other needs that you may have related to your illness.

Terminal illness riders cover a range of severe and life-threatening conditions, but qualifying illnesses depend on the policy and provider. Common illnesses that a terminal illness rider may cover include:

Advanced cancer
Severe heart conditions
Late-stage Alzheimer’s disease
Late-Stage ALS (Amyotrophic Lateral Sclerosis)
Late-stage Parkinson’s disease

Requirements to Access for Terminal Illness

To access the accelerated death benefit for terminal illness, you’ll need to obtain a formal diagnosis from a licensed healthcare professional confirming the terminal illness. The diagnosis should come with a prognosis indicating your illness will result in death within a timeframe specified in your policy.

Chronic Illness Rider

Chronic illnesses can wrench your life and make it hard to keep up with your monthly bills. With the chronic illness rider, you can receive a payout while still alive if you suffer from a qualifying chronic illness.

For example, a chronic illness that leaves you unable to continue with certain activities of daily living (ADLs) without assistance or if you require a lot of supervision during the illness. Chronic rider benefits can help cover medical expenses, long-term care, or even day-to-day living expenses.

Research shows nearly half (45%) of American adults suffer from at least one chronic disease. In addition, over two-thirds of deaths are from one or more common chronic illnesses: diabetes, heart disease, asthma, stroke, cancer, and chronic obstructive pulmonary disease.

This high probability of living with a chronic illness (sometimes multiple chronic illnesses) makes it crucial to take advantage of available life insurance riders for better financial planning.

Requirements to Access for Chronic Illness

You should complete and submit a request form to access the chronic illness rider. Also, you’ll need to have a certification from a medical doctor confirming the chronic illness. This certification should contain details about the nature and extent of the chronic condition and how it impacts your ability to perform ADLs.

How Are Accelerated Benefits Paid?

Once you meet the criteria, you can start receiving benefits from your accelerated death benefit rider. Based on your policy and insurance provider, you can receive the rider amount as a lump sum or monthly payment.

Taxation

A common concern for many policyholders regarding accelerated death benefits is whether the amount one receives is subject to tax. Typically, ADBs are not subjected to tax. However, the best is to consult your tax advisors since you don’t want to be on the wrong side of Uncle Sam.

Fees/Interest

While you may not pay taxes for your ADBs, the rider most likely has administrative fees or charges associated with accelerated benefits, while others may not. Similarly, interest may or may not be applied to the payout amount, so clarifying these details with your insurance provider is essential.

Limits on Amount Paid

There’s usually a limit on the amount you can receive through accelerated benefits. Your insurance provider will pay you depending on the provisions of your rider.

The specific percentage mostly varies between insurance providers, ranging from 25% to 75%. Some providers offer a maximum percentage of 95% of the entire face amount, while few allow you to accelerate the whole amount. Others will stipulate the amount you ask for should not be less than the lesser of 25% of the amount of your life insurance.

Furthermore, depending on policy and insurer, there can be a set limit on the benefit you can receive, either monthly or yearly.

Impact on Policy Payout Upon Death

Accessing your accelerated death benefit while still alive reduces the amount your beneficiaries will receive upon your death. The final amount will be less by the amount of the accelerated death benefit you received.

While an accelerated death benefit relieves financial stress while you are alive, it leaves your beneficiary with less money available after you pass away. That’s why you should carefully consider which is best for your loved ones in both scenarios.

Considerations for Government Assistance Programs

It’s worth noting that receiving an accelerated death benefit can impact your eligibility for some government programs, such as Medicaid and Supplemental Security Income (SSI).

That’s because the programs are available to low-income people, and taking the accelerated death benefit is like receiving an income. It can change your financial status, potentially disqualifying you from the program. Consulting with your caseworker is essential to clearly understand the potential effect.

Example of Accelerated Death Benefit

Let’s say Jane has been diagnosed with a terminal illness and has been given a prognosis of less than a year to live. Jane has a life insurance policy with an accelerated death benefit rider. According to Jane’s policy, she can receive up to 50% of her death benefit, with a maximum limit of $100,000.

Jane decides to apply for the ADB with the help of her insurer. She then submits the required documents, including her diagnosis and prognosis. The insurance company reviews her application based on the terms and conditions of her policy.

Her insurer offers 40% of her death benefit, up to the maximum of $100,000, and she receives a lump sum. She can now use the money for her medical expenses and make necessary financial arrangements for her family. Her beneficiary will receive 60% of her death benefit upon her passing.

Choosing the Right Policy

When considering a life insurance policy with an accelerated death benefit, it is crucial to thoroughly research so you have the best coverage that will meet your needs. Some things to do to ensure you have the best policy are:

Evaluating Insurance Providers

Thorough research and evaluation of insurance providers can help you choose the best policy with accelerated death benefits to meet your unique needs. You can consider factors such as a company’s financial stability, customer satisfaction ratings, policy features, and the reputation of its claims payment process.

Also, comparing quotes can give you a clear picture of what to expect in the future. Getting reviews from trusted sources can also help you make informed decisions when choosing an insurance provider.

Read our reviews of these life insurance companies:

Compare Policy Features and Riders

It’s good to note that accelerated death benefits can vary from coverage and eligibility criteria to payout options depending on your chosen insurance policies. It’s good to review it thoroughly and ensure you understand the terms and conditions to align the policy well with your specific needs and expectations.

Note that accelerated death benefits should not replace long-term care insurance but complement it by catering for expenses it might not cover.

Time to Shape Your Family’s Future

Life insurance can be hard to understand, and its complexities can be overwhelming. By seeking professional advice, you can choose the best policy with the accelerated death benefits you and your family need.

At Physicians Thrive, having the best policy to meet your needs is our satisfaction. Our experts are ready to help you thrive. We can provide you with more financial advice and recommend solutions to shape your life. You can reach out for free life insurance quotes to ensure you get the best financial security for you and your family. Contact us now for more information.

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