Life insurance is one of the soundest investments you can make. It enables you to provide your loved ones with the financial protection that they need in the event of your passing. While no amount of money can replace you, it can certainly help to comfort the loss and ease the hardships that those who are financially dependent on you will likely face when you die.
Life insurance can not only offer financial protection when you pass away, but it can also provide the same protection before you pass. If you have been diagnosed with a chronic medical condition or a terminal illness, such as cancer, an accelerated death benefit be a godsend.
Accelerated Death Benefits Explained
An accelerated death benefit (ADB) is a rider that can provide the owner of a life insurance policy with benefits while he or she is still alive. In other words, this rider would enable you to receive part of the benefits of your life insurance policy early. Accelerated death benefits are also known as living benefits.
Depending on the insurance provider, an accelerated death benefit rider is standard with a life insurance policy; you automatically receive this rider when you purchase your life insurance (it is usually a feature of a permanent life insurance policy). In some cases, however, you may have to add the rider to your policy and pay an additional premium for the coverage.
The Benefit of Accelerated Death Benefits
You can add a living benefit to your life insurance policy when you purchase it or after you have purchased it. When this rider is in place, the policyholder will receive a portion of the death benefit while he or she is still living. For example, if you have been diagnosed with a terminal illness, such as cancer or kidney disease after you purchased a life insurance policy, you can add a living benefit to your existing policy.
The cost of medical care that is required for terminal illnesses can be exorbitant. In addition to having to pay medical bills, a terminally ill patient still has to cover the cost of living expenses; mortgage payments, food, transportation, etc. An accelerated death benefit can provide assistance for these expenses. It can offset costs and help the insured avoid financial hardship on top of an already difficult situation.
How do Accelerated Death Benefits Work?
If you have been diagnosed with a terminal illness and you have an accelerated death benefit rider, contact your life insurance provider. You will need to supply your provider with the necessary documentation that asserts you do, indeed, have a terminal illness.
Once your case is assessed, you will receive a percentage of the death benefit granted by your life insurance policy. The percentage varies from insurance provider to insurance provider; however, it can range between 25 percent and 95 percent. After you pass away, the remaining amount of your death benefit will be paid out to the beneficiaries you have listed on your life insurance policy. In the event that you recover from your illness, you will not be required to pay back the benefits that you received while you were sick.
What are the Qualifications for Accelerated Death Benefits?
To receive an accelerated death benefit or living benefit, you will have to meet the qualifications set forth by your insurance provider. Typically, any of the following will qualify you for this benefit:
- A diagnosis of a terminal illness that is expected to result in death within two years.
- A diagnosis of an illness that will reduce your life expectancy.
- A diagnosis of an illness that necessitates and organ transplant or hospice care.
- A diagnosis of an illness that will require assistance with everyday tasks, such as using the bathroom, bathing, eating, and taking medications.
Accelerated Death Benefits: FAQ
If you’re thinking about adding an accelerated death benefit to your life insurance policy or a living benefit is already a feature of your policy and you are considering using it, it’s likely that you have questions. Below, you’ll find answers to some of the questions you may have.
Q: Is a living benefit taxable?
A: No, accelerated death benefits are not taxable. In other words, you will not be required to pay taxes on any money you receive from a living benefit.
Q: Are there any restrictions regarding how living benefits can be used?
A: Typically, there aren’t any restrictions that dictate how you can use a living benefit. For instance, you could use it to pay for your medical bills and medications, or you can use it to cover your living expenses. With that said, checking with your insurance provider is recommended to ensure that there aren’t any exclusions regarding the use of the benefit.
Q: Are living benefits limited?
A: Yes. These benefits are limited; you will only receive the percentage that your insurance provider offers.