What Are Accelerated Death Benefits?

An accelerated death benefit (ADB) is a benefit that can be attached to a life insurance policy that enables the policyholder to receive cash advances against the death benefit in the case of being diagnosed with a terminal illness.

Many individuals who choose an accelerated death benefit have less than one year to live and use the money for treatments and other costs needed to stay alive.

How Accelerated Death Benefits Work

Choosing a life insurance policy with an accelerated death benefit (ADB) allows the policyholder to pay for their daily living to make it as comfortable as possible while allowing the holder to look after their family once they pass away. This type of benefit was originally started in the late 1980s to alleviate the financial pressures of those diagnosed with AIDS.

The accelerated death benefit provision in a life insurance policy is also known as a "living benefit" rider or "terminal illness benefit."

Some policies might make an accelerated death benefit available even if it's not mentioned in the contract. You qualify for accelerated death benefits if you contract a terminal illness and are expected to die within two years. You also qualify if you've been diagnosed with an illness that will reduce your expected lifespan, need an organ transplant because of illness, or be in long-term hospice care. Accelerated death benefits are also possible if you need assistance with everyday activities like bathing or using the toilet.

The cost of a living benefit can vary according to the insurance company and policy. If the coverage is already included, the cost will be included in the policy. If not, you will have to pay a fee or a percentage of the death benefit.

Example of Accelerated Death Benefits

Consider a 40-year-old named Fred, a preferred non-tobacco user with a $1 million life insurance policy. Fred contracted terminal brain cancer and decided he wanted to accelerate half the face value of his policy and collect an accelerated death benefit. After reviewing the claim, the insurance company made a lump-sum offer of $265,000. Fred accepted the offer and received a $265,000 payment. His death benefit was decreased by the amount he accelerated ($500,000). After cashing the check, Fred's remaining death benefit was $500,000, and he paid new premiums based on a $500,000 face value instead of the original $1 million face value.

Special Considerations

Accelerated death benefits are usually tax-exempt for individuals expected to die within two years. This type of benefit isn’t meant to substitute for long-term care insurance coverage. It should be used to supplement expenses not covered by a long-term care policy. Accelerated death benefits are also different from chronic care or long-term care rider.