The Accelerated Death Benefit: What It Is and How It Works
While you purchased your life insurance policy with beneficiaries in mind, you can also ensure you personally receive some financial benefit in certain circumstances. The accelerated death benefit (ADB) lets you receive living benefits in the event you are diagnosed with a terminal illness.
Some insurance companies include an ADB with their life insurance policies, but you may need to add it as a rider to your core policy.
What Qualifies for an ADB Claim Coverage
Although insurance companies vary in terms of ADB guidelines and details such as how much they will pay and when it will be received, the ADB generally applies it a policy holder who is expected to die within a year or two.
Besides a terminal diagnosis, an ADB may also pay out if the policy owner is critically ill and:
- needs an organ transplant
- is in hospice care
- requires in-home assistance with activities of daily living
- is in a long-term care facility
How ADB Works
When a claim is filed towards a policy that includes an ADB, the insurance company provides the policy holder with a lump-sum payment that represents an advance of a portion of the death benefit. How much paid out depends on the terms and conditions of the policy.
With a whole life or universal life insurance policy, you can borrow from its cash value. An ADB payout, however, actually decreases the actual death benefit. Typically, the insurance company will offer a lump-sum payment that is about half the amount of the policy’s stated death benefit. This amount will then be deducted, lowering the death benefit that is ultimately paid out to the beneficiaries.
Keep in Mind
Should you need to file an ADB claim, remember that:
- The lump-sum payment is generally not considered taxable income.
- A large ADB payout might affect any Medicaid or Social Security benefits you are receiving.
- Although, an ADB payout is meant to help financially for the last few months of a life, you can use the money however you want, like taking a trip or to paying off debts.
Ask your life insurance provider about a policy’s ADB provisions, or about adding an ADB rider. An accelerated death benefit can give you peace of mind knowing that you will have the option of your end-of-life financial expenses.