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What is an accelerated death benefit?

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Life insurance policies include a death benefit that provides financial support for your loved ones after you pass away. But you might be wondering if you can use that money while you’re still alive.

The short answer is yes, it is possible to access funds early from your life insurance policy using an accelerated death benefit rider. Keep reading to learn what is an accelerated death benefit, how it works, and when you can use it.

Accelerated death benefit defined

An accelerated death benefit is a rider (also called an endorsement) that can be added to your life insurance policy. It allows you to access the money from your life insurance policy if you get diagnosed with a terminal illness that is expected to shorten your lifespan. A life insurance accelerated death benefit may also be called a living benefit rider or a terminal illness benefit.

Some insurance companies automatically include an accelerated death benefit rider in your life insurance policy at no added cost. However, you have to meet certain criteria in order to use the rider. Not every critical illness qualifies for an accelerated death benefit. We’ll explain what illnesses and conditions qualify later on. 

How do death benefits work?

Every life insurance policy includes a death benefit. It’s money that is given to your beneficiaries, like a spouse or child, after you pass away. The money in the death benefit is tax-free and can be used however the beneficiary wants. Usually, the funds are used to replace income or pay for funeral expenses.

For example, if your life insurance policy is worth $500,000, your beneficiaries would receive $500,000 after your death. As long as you continue to pay the monthly premium, your policy stays in force and guarantees a death benefit when you pass away.

Your beneficiaries can only receive the death benefit following your death. To access the money, a beneficiary must contact your life insurance company and file a claim. Once the death certificate has been validated, the insurance company pays the beneficiary. A death benefit can be paid in one lump sum or in installments over time.

How does an accelerated death benefit rider work?

An accelerated death benefit works much differently than a traditional death benefit. With an accelerated death benefit provision, the policyholder can access the funds while they are still living. 

To claim the money using an accelerated death benefit rider, you first have to prove to the insurance company that you have been diagnosed with a terminal illness or another medical condition that will shorten your lifespan. The insurance company will request to see your medical records and possibly speak with your doctor.

Like a traditional death benefit, you’ll receive a check for the money you borrow and it can be used to cover a variety of medical expenses, including palliative care. However, there are limitations to the amount of money you can take out with an accelerated death benefit. Most insurance companies only pay a portion or percentage of the policy’s total value.

For instance, if your life insurance policy is worth $1 million, you might not be able to take out $1 million with an accelerated death benefit rider. Some insurance companies offer up to 50% of your policy’s total value, and others offer 100% up to a certain dollar amount. Every insurance company is different, so it’s a good idea to check to see what your policy covers.

When you take money out of your policy using an accelerated death benefit rider, you don’t get the funds back. Claiming an accelerated death benefit means your beneficiaries will ultimately receive a lower death benefit when you pass away. 

How to qualify for an accelerated death benefit

Just because your life insurance policy has an accelerated death benefit, doesn’t mean you can use it. There are certain qualifications you have to meet in order to use money from your death benefit while you’re still living. Here are the situations that qualify:

You’ve been diagnosed with a terminal illness

People who have been diagnosed with a terminal illness are eligible for an accelerated death benefit. Additionally, anyone who has been diagnosed with a condition that will significantly shorten their lifespan can also claim an accelerated death benefit. Some qualifying conditions include heart attack, stroke, cancer and paralysis.

You need an organ transplant

If you need an organ transplant due to a chronic illness, you are likely eligible for an accelerated death benefit. The life insurance funds can be used to pay for the transplant itself, recovery care or continuing treatments.

You are receiving long-term care

People who are permanently living in a long-term care facility or are using hospice care are also eligible for an accelerated death benefit. The money can be used to pay for these services and other forms of palliative care, including in-home care. 

You need help with everyday activities

If you need assistance with basic everyday activities – like using the bathroom, cooking or showering – due to a chronic illness, you may be able to get an accelerated death benefit. Typically, however, you won’t qualify for an accelerated death benefit unless you have a chronic condition.

What do accelerated death benefits cover?

Like a regular death benefit, an accelerated death benefit can be used however you want. It’s most commonly used to pay for medical expenses related to an illness, but there are no strict guidelines. An accelerated death benefit will cover:

  • Medical bills
  • Nursing home costs
  • Vacations
  • Paying off mortgage or loan debt
  • Private caretakers

Accelerated death benefits and taxation

Many people have questions about accelerated death benefit taxation. Fortunately, an accelerated death benefit is usually tax-free because it doesn’t count as income. However, there are exceptions, including:

  • If the value of your estate is over $11.58 million
  • If your policy has cash value and you borrow more than you paid into the policy
  • If you have group life insurance and take out more than $50,000

How much does an accelerated death benefit cost?

When you purchase life insurance, most insurance companies include an accelerated death benefit rider at no added cost. However, almost every life insurance provider charges an administrative fee if you want to access your policy’s death benefit in advance. The fees vary by insurance company, and the money will get pulled out of your death benefit. 

The takeaway

  • An accelerated death benefit allows you to borrow money from your life insurance policy while you’re still alive.
  • You can use the rider if you get diagnosed with a terminal illness that is expected to significantly shorten your lifespan.
  • Most insurance companies include an accelerated death benefit rider with every policy.

An accelerated death benefit rider can be beneficial for many people to have in their back pocket, especially as they get older and their health deteriorates. If you’re not sure if your life insurance policy includes an accelerated death benefit rider, contact your insurance company. They can also let you know what conditions qualify, how much money you can borrow and how much you’ll be charged for claiming the money early.

Elizabeth Rivelli

Elizabeth is an insurance writer for coverage.com, where she covers insurance providers and reviews policies to help consumers find comprehensive and affordable coverage for every area of their life. She has more than three years of writing experience for top online insurance and finance publications.

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