Accelerated Death Benefit Rider Explained
Quick Facts
Accelerated death benefit riders may be included in your life insurance policy or offered as an add-on
Accelerated death benefits are intended for customers who have less than two years to live
Usually, the death benefit amount is reduced when customers use their accelerated death benefit rider
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.
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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.
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.
Frequently Asked Questions
How much does an accelerated benefit rider on life insurance cost?
It depends on whether it is included with your policy or offered as an add-on. If this coverage is already included in your policy, you won’t have to pay anything extra for coverage. However, your rates will go up a small amount if you have to pay to add this coverage.
What is an ADB Rider?
ADB simply stands for accelerated death benefit rider.
What’s the difference between ADB riders and viatical settlements?
An accelerated death benefit rider lets you keep your life insurance policy if you withdraw funds, although your death benefit payout will be reduced. On the other hand, a viatical settlement means your insurance policy is purchased by another party.
You will get a lump sum payment for your policy, but it will no longer be yours after a viatical settlement. Instead, the third party will receive the death benefit payout after you pass away.
What happens if you receive accelerated death benefits but survive?
If your terminal illness improves or you live longer than expected, you do not have to pay back the accelerated death benefits. Your insurance company already approved the request and paid you the money, and it was yours to do as you saw fit to pay for your health care.
Are accidental death riders the same as accelerated death benefit riders?
An accelerated benefit provision is not the same as an accidental death rider. An accidental death life insurance rider offers an additional payout to your beneficiaries if you die in an accident.
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Rachael Brennan has been working in the insurance industry since 2006 when she began working as a licensed insurance representative for 21st Century Insurance, during which time she earned her Property and Casualty license in all 50 states.
After several years she expanded her insurance expertise, earning her license in Health and AD&D insurance as well. She has worked for small health in…
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Written by
Rachael Brennan
Licensed Insurance Agent
Benjamin Carr worked as a licensed insurance agent at State Farm and Tennant Special Risk. He sold various lines of coverage and informed his clients about their life, health, property/casualty insurance needs.
Assessing risks and helping people find the best coverage to suit their needs is a passion of his. He appreciates that insurance was designed to protect people, particularly during times…
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Reviewed by
Benjamin Carr
Former State Farm Insurance Agent
