Accelerated Death Benefit Rider Explained

Not sure if an accelerated benefit provision is right for you and need an accelerated death benefit rider explained so you can decide whether to include it? Basically, an accelerated benefits provision is a benefit that clients can add to their life insurance policy. It gives clients cash advances if they are diagnosed with a terminal illness so they can pay for health care. Therefore, it is sometimes known as a terminal illness accelerated death benefit.

Keep reading to learn all about an accelerated benefit provision, from examples of how they work to other options offered at the best life insurance companies for those who don’t want an accelerated death benefit.

Accelerated Death Benefit Rider Explained

The accelerated death benefit provision is an extra coverage that can be added to your life insurance policy if you have a terminal illness. We explain it in greater detail below so that all your questions are answered.

How an Accelerated Death Benefit Works

In order to qualify for an accelerated death benefit, you must have a terminal illness with a life expectancy of fewer than two years. You can also qualify if you need an organ transplant or long-term hospice care.

Generally, the accelerated death benefit is taken from your death benefit that is paid to your beneficiaries, so your total death benefit is reduced over time, depending on how much you take out. The other option is that you pay extra for the accelerated death benefit so that it isn’t taken out of your death benefit.

Are accelerated death benefits taxable? Accelerated death benefits are usually not taxable as long as the funds given don’t exceed two years.

Example of an Accelerated Benefit Rider

Let’s say a customer has a two-million-dollar life insurance policy. They are diagnosed with a terminal illness and choose to take advantage of the accelerated benefits rider. The insurance company will settle on an amount to give them, such as $500,000, but will reduce the policy’s overall value.

For example, the value of the policy might be reduced to one million instead of two million, so the death benefit paid out to the beneficiaries will be half of what it was. However, the customer gets to use the money to pay for end-of-life care, so they benefit from the life insurance policy while still alive.

Special Considerations for an Accelerated Benefits Rider

While an accelerated benefits rider may seem similar to a long-term care policy, it is not intended to provide funds for care for more than two years. So if you are looking for something to supplement long-term care, an accelerated benefits rider probably isn’t the right choice for you.

Instead, an accelerated benefit rider aims to provide a portion of the death benefit to customers with terminal illnesses. The money is meant to be used for health care so terminally ill patients can live comfortably. The only catch is that the death benefit paid out to beneficiaries will be lower.

Deciding if Accelerated Death Benefits Are Worth It

Not sure if an accelerated death benefit rider is right for you? Some insurance companies may include an accelerated death benefit along with your policy, so you don’t have to decide whether to add it or not.

Other insurance companies will offer you the choice to add this accelerated death benefit to your policy, in which case they will charge you more to add it. In this case, make sure you consider the cost compared to the benefits.

Usually, this life insurance rider can be valuable for most customers. It helps make sure that you don’t have to worry about paying for medical care in the last year or two of your life. Your beneficiaries will also still receive a death benefit payout, even if it is less than what you originally purchased.

Options Besides Accelerated Death Benefits

If you don’t want to add an accelerated death benefit to your life insurance policy, there are a few other options for getting life insurance accelerated benefits to pay for your care. If you have a permanent life insurance policy with a cash component, one option is to use the cash value policy portion to pay for your care. Most types of term life insurance won’t allow this, so permanent life insurance is better if you want to withdraw funds.

Another option is to get a long-term care rider for your life insurance policy. Unlike accelerated death benefit riders, long-term care riders will provide funds for care for as long as you need it.

The final option if you need funds for care is to sell your life insurance policy for a life insurance settlement. While you can get a large sum for your life insurance policy, depending on how much it’s worth, you will no longer have a life insurance policy, and your intended beneficiaries will no longer receive a death benefit payout.

Case Studies: Accelerated Death Benefit Rider Explained

Case Study 1: LifeShield Insurance Company

John, a 52-year-old policyholder insured by LifeShield Insurance Company, was diagnosed with stage IV lung cancer. Given the severity of his condition, John’s medical expenses skyrocketed, making it difficult for him to cover the costs while maintaining his daily living expenses.

Fortunately, John had an Accelerated Death Benefit Rider as part of his life insurance policy. Upon filing a claim and meeting the required criteria, he received a lump sum payment of $100,000 from LifeShield Insurance Company, which helped alleviate his financial burden and provided peace of mind during his treatment.

Case Study 2: SecureLife Assurance

Mary, a 68-year-old policyholder insured by SecureLife Assurance, suffered a stroke that left her unable to perform basic activities of daily living independently. This rendered her in need of long-term care assistance.

By activating the Accelerated Death Benefit Rider in her life insurance policy, Mary was able to receive monthly payments of $2,500 from SecureLife Assurance. This ongoing financial support allowed her to afford the necessary care and support services, enabling her to maintain a good quality of life despite her medical condition.

Case Study 3: Provident Protection

David, a 42-year-old policyholder insured by Provident Protection, was diagnosed with amyotrophic lateral sclerosis (ALS), a progressive neurodegenerative disease. As the disease advanced, David’s mobility and ability to work declined rapidly, leading to a significant loss of income.

Thanks to the Accelerated Death Benefit Rider provided by Provident Protection, David was eligible to receive a monthly income of $4,000 for a predetermined period. This income replacement helped David and his family manage their living expenses and maintain financial stability throughout his illness.

The Final Word on Accelerated Death Benefits

An accelerated benefits rider life insurance coverage can be useful for those who have terminal illnesses and need funds for their health care. While the death benefit payout will usually be reduced, clients can get the funds for their care without surrendering their policy.

If you are interested in a life insurance policy with an accelerated death benefit, you can use our free quote comparison tool to find the best rate from companies in your area.