What Is an Accelerated Death Benefit

What Is an Accelerated Death Benefit?

An accelerated death benefit (ADB) is a feature of a life insurance policy that pays a percentage of the death benefit early (up to the full benefit in some cases) if qualifying conditions are met.

What Is an Accelerated Death Benefit?

Being diagnosed with or living with a serious illness can be difficult at best. If you qualify, an accelerated death benefit feature on a life insurance policy allows you to access a portion of the death benefit sooner.

That could be if you become terminally ill, chronically ill, or critically ill; require long-term care; or experience any of these conditions, depending on the policy. (This could happen if the policy has multiple riders or if one rider covers multiple events.) Benefit eligibility and limits differ depending on the insurer and the state.

On both permanent and term life insurance policies, one or more ADBs may be included as standard policy features or available as optional riders, some at an additional cost. ADBs are typically only available on new policies. They are not considered insurance in and of themselves, but if exercised, they serve as an acceleration of the death benefit.

Alternative names: Living benefits rider, accelerated living benefits rider, chronic illness rider, terminal illness rider, critical illness rider, long-term care (LTC) rider are all names for the same thing.
Acronyms: ADB, ABR (accelerated benefit rider)

How an Accelerated Death Benefit Works

If you develop an eligible condition, life insurance policies with living benefit riders pay you (as a prepayment of the death benefit) while you are still alive. You may be able to buy riders only when the policy is issued, or you may be able to add them later. For example, instead of settling for the standard feature that requires a six-month diagnosis to accelerate the death benefit, you could purchase a terminal illness rider that requires a diagnosis of 24 or fewer months to live.

When an ADB is exercised, or activated, the insurer pays the funds from the policy's death benefit, and when the insured dies, the beneficiary receives the remainder.

ADBs can pay a percentage of the policy's death benefit in one lump sum or as an ongoing monthly benefit, ranging from 25% to 100%. For example, a terminal illness ADB might pay 75% of the death benefit once, whereas an LTC rider might pay a monthly benefit but cap the total benefit paid at a certain dollar amount.

ADBs can also limit the amount of money paid for specific types of care: for example, an LTC rider may pay up to 2% of the death benefit per month for nursing home care but only 1% for home health care.

Tax and Other Considerations

Receiving funds from an ADB may impact your eligibility for Medicaid or other government assistance programs. Benefits may or may not have federal and state tax consequences, even if they are intended to qualify as a "death benefit" under IRS code (and thus not be taxable). This is determined in part by your life expectancy, the amount of "qualified" expenses you've incurred (for example, qualified long-term care expenses), and the amount of benefits received.

Because federal and state tax laws are subject to change, and tax laws pertaining to accelerated benefits are complex, seek the advice of a tax advisor before exercising benefits.

What Accelerated Death Benefits Cover

Benefit limits and the circumstances under which you can use an ADB's features vary. However, accelerated death benefits can be divided into four categories based on common triggering events:

Type of Benefit	Triggering Event	Type of Payment
Chronic illness	You’re diagnosed with a chronic illness that is considered nonrecoverable. (You’re unable to perform at least two activities of daily living, like bathing, dressing, and feeding yourself, or you suffer severe cognitive impairment and require substantial supervision.)	Lump-sum payment
Long-term care	You’re unable to perform at least two activities of daily living, like bathing, dressing, and feeding yourself, or you suffer from severe cognitive impairment. You may not need to be deemed chronically ill—in some cases, conditions from which you can fully recover may be eligible.	Subject to an elimination period before benefits eligibility, such as 90 days for a monthly benefit
Terminal illness	You’re diagnosed with a terminal illness and a life expectancy of less than six months to two years, with the time period depending on the specific rider and insurer.	Lump-sum benefit
Critical illness	You’ve experienced a qualifying condition, such as a major heart attack, an invasive cancer, paralysis, major organ transplant, or end-stage renal failure.	Lump-sum benefit

How To Get Accelerated Death Benefits

Many insurance companies include one or more ADBs as standard features in new life insurance policies, but they may also offer enhanced living benefits for a fee, usually calculated as a percentage of the base premium. Some providers that include an ADB (at no extra cost) will discount the acceleration of the death benefit based on a number of factors such as the insured's age, gender, and policy specifics such as cash value, and they may also charge a service fee if exercised.

Although ADBs are most commonly associated with permanent life insurance policies such as whole life and universal life insurance, some insurers include them in term life policies or make them available for purchase. ADB riders are typically offered when purchasing a new life insurance policy, but some carriers allow you to add one to existing coverage.

Alternatives to Accelerated Death Benefits

Utilizing an accelerated benefit is a good option to have, but it is not always the best option, especially if it would result in tax consequences or affect your Medicaid eligibility. Furthermore, the benefit received by your beneficiaries will be reduced or even eliminated. Depending on your financial situation, you may want to consider another option.

Access the cash value: Permanent life insurance policies, such as whole life and universal life, allow you to borrow or withdraw from the accumulated cash value of your policy. If you borrow money, you must pay interest, and any unpaid balance will be deducted from your death benefit when you die. Alternatively, you could fully surrender the policy for its cash surrender value, in which case the policy would terminate and no death benefit would be paid. Withdrawing from a permanent life insurance policy's cash value or surrendering it may result in fees and tax consequences.
Life or viatical settlement: In a life or viatical settlement, you may be able to sell your policy. You may need to be diagnosed as terminally or chronically ill or be over a certain age, such as 65, depending on the type of settlement. Selling the policy terminates your coverage, and depending on the type of settlement and your qualifying conditions, you may be required to pay taxes on the sale.
Long-term care insurance: Long-term care insurance can be costly, but it makes sense if you want or need benefits that are not limited by a percentage of your policy's death benefit. LTC insurance can cover long-term care expenses for two years to a lifetime, depending on the policy terms.