Accelerated Death Benefit

    Everything You Need To Know About Accelerated Death Benefits

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    Most insurance companies offer accelerated death benefits as add-ons or policy riders, although they may sometimes be included in your life insurance policy free of charge. Accelerated death benefits offer you extra flexibility in your life insurance plan by allowing you to receive funds from your death benefit early, but they do come with some tradeoffs.

    In this overview, we’re going to discuss everything you need to know about accelerated death benefits. With this information, you’ll be able to decide if it’s something you want to include in your life insurance policy. 

    What Is An Accelerated Death Benefit?

    Accelerated benefits, also called living benefits or ADB, are common add-ons that many life insurance companies offer on top of their life insurance policies. This benefit rider lets you access a percentage of your guaranteed death benefit in the unfortunate circumstance that you get diagnosed with a terminal illness and are given less than two years to live.

    The money can be used to pay for treatment, hospitalization, and other illness-related or long-term care expenses. In practice, ADBs can act as a form of long-term care insurance.

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    How Do Accelerated Death Benefit Riders Work?

    Individuals who get a terminal illness diagnosis may want to reduce the financial stress on themselves and their loved ones – this is where ADB comes into play. 

    After getting diagnosed, a terminally ill policyholder can file a request to activate the accelerated death benefit rider and claim the advanced payout. The amount that the insured can withdraw is based on a percentage of the policy’s face amount. The maximum coverage and payout methods can vary from company to company, so always make sure to check what options are available to you.

    Here’s an example:

    Let’s say your policy has a face value of $100,000 and an ADB set at 50% of your actual death benefit amount. Let’s also say that you get diagnosed with a terminal illness (e.g. cancer). In this situation, you can file a claim to receive your accelerated death benefit payment.

    Once approved, you will receive $50,000 (either in a lump sum payment or through regular deposits). The remaining $50,000 will be paid to your beneficiary/beneficiaries after your passing, either as a lump sum or in regular monthly payments (also known as an annuity).

    Additionally, your policy premiums will be adjusted to account for the remaining death benefit of your life insurance policy. This usually means cheaper premiums for the rest of the life insurance contract.

    Who Can Qualify For An Accelerated Death Benefit?

    Whether a policy owner qualifies for accelerated death benefits will depend on the specific life insurance company and their policies. However, the most common factor is life expectancy. Most life insurance providers usually require that the insured has a remaining life span of two years or less to activate the accelerated death benefit policy rider. 

    In certain situations, coverage can sometimes be expanded for a policyholder who has a longer expected life span. Having a chronic non-terminal illness may qualify you for the accelerated death benefit – however, insurers offer a reduced portion of the ADB guarantee in these cases.

    In some cases, individuals can qualify automatically, such as in the following situations: 

    • You have undergone or about to undergo an organ transplant.
    • You require assistance to complete daily tasks associated with living (e.g. those living in a nursing home).
    • You are diagnosed with a critical condition (e.g. kidney failure).

    Read up on the specific qualifications of your insurance company and policy to avoid any problems claiming your accelerated benefits down the road. You should also check if there are any restrictions on how you can spend the benefit payout.

    These considerations should be top-of-mind while you’re canvassing insurers. Do not sign off on an accelerated death benefit provision before understanding the terms!

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    What Can The Accelerated Death Benefit Be Used For?

    More often than not, the treatments and procedures required for a terminal illness are very costly and may not be fully covered by your health insurance. The idea behind ADB is that the payout will be used to pay for end-of-life care, long-term care, or other similar financial obligations that come with being terminally ill. 

    Accelerated death benefits protect the policyholder and their family from spending their own money on medical care. The payout can be used for settling hospital bills, making funeral arrangements, and even paying off existing loans that you want to be settled before you’re gone. 

    Are There Any Drawbacks?

    While an early life insurance payout might sound good to a policyholder, there’s also a trade-off. Comparing the pros and cons will help you figure out if activating your accelerated death benefit rider is worth it for you.

    The most obvious drawback to claiming your ADB is the reduced death benefit that your beneficiary/beneficiaries will receive. Your loved ones may be relying on the full face value of your policy to replace your income. 

    You should also consider the administrative fees that may come with claiming the accelerated death benefits. These fees are usually deducted from the payout and will vary from company to company. Keep these in mind so you know exactly how much you are going to receive from your accelerated death benefit rider. 

    Additionally, taxation might be something to keep an eye out for. Accelerated death benefits are usually income tax-free, but there are always exceptions. These vary from case to case and will usually depend on your existing assets, the amount of the ADB payout, and your local tax laws. You may be required to report the amount, so always consult with your tax advisor beforehand. 

    Lastly, activating your accelerated death benefit rider might affect your ability to claim similar benefits from other insurance plans you may have. It’s always a good idea to talk to your insurance company or agent to see if claiming your ADB will have any effect on your existing health or long-term care insurance coverage. 

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    Should You Include An Accelerated Benefit Benefits In Your Life Insurance Plan?

    Many life insurance policies already include accelerated death benefits at no additional cost. If this is the case for you, then there’s no reason not to get this rider – you get all of the benefits without the disadvantage of higher premiums. 

    If your chosen life insurance company offers it as an add-on, then it’s definitely something you should consider carefully. Adding this type of life insurance policy rider usually results in higher premiums. You should weigh the pros and cons to figure out if the added coverage is worth the extra amount of money. 

    At the end of the day, you know your goals and financial situation better than anyone else. Ask yourself: why do you want accelerated death benefits? Do you already have long-term care or health insurance that already covers terminal illnesses? Are you financially secure enough to cover it on your own?

    Remember that the goal of this type of life insurance policy rider isn’t just to receive an early payout – it’s to help the policyholder and their family deal with any financial burdens that come with a severe health condition.

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    The accelerated death benefit is a life insurance policy rider that protects the policyholder in case of a terminal illness diagnosis. If your insurer doesn’t already automatically provide it as a part of their basic life insurance policy offerings, then it’s definitely something to consider. 

    Finding the right life insurance policy can be confusing, especially for new buyers. If you need help, get in touch with Wesley Insurance, LLC. We specialize in investment advice, tax advice, and insurance advice – contact us today to learn more about what we can do for you!

    Written By Cameron McDowell
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