Life Insurance Accelerated Death Benefits as a Means to Pay for Care

 

Accelerated Death Benefit Definition

An Accelerated Death Benefit (ADB) allows a life insurance policy owner to receive a portion of their death benefit from their insurance company in advance of their death. The policyholder must be terminally ill, usually with a life expectancy of two years or less. They must continue to make their policy’s monthly payments while receiving benefits. Accelerated death benefits do not need to be re-paid. Instead, the loan amount is deducted from the face value when the death benefit becomes due. ADBs are also referred to as "living benefits".

 

Pros & Cons of Accelerated Death Benefits

Terminally ill seniors that have life insurance policies are able to receive a portion of their death benefit from their insurance company in advance of their death. This is referred to as accelerated death benefits or ADB. These benefits can be used for any purpose the senior chooses, including home care, nursing home care, assisted living, and hospice. ADB beneficiaries still receive a death benefit, although it is reduced by the amount of the accelerated death benefit.

ADBs are a relatively new option. As a result, elderly individuals who have had their policies for many years may find no mention of the ADB option in their policy. Interested individuals should ask their life insurance provider directly if this option is available. The major advantage to receiving an ADB is that they allow the policyholder to have a portion of their death benefit in advance of their death. There are no major drawbacks to this option; its biggest limitation is that policyholders are required to be terminally ill. There are different options for policyholders who require care, but are not terminally ill (more on these follow).

 Potential candidates should be aware that generating a lump sum of cash through an accelerated death benefit may change their financial status and could possibly disqualify them from receiving Medicaid or Supplemental Social Security benefits.

Other Options for Life Insurance Policyholders

 

A similar option for terminally ill seniors is a viatical settlement. Under a viatical, the policy is sold to a third party and the policyholder receives a lump sum settlement. The major difference between accelerated death benefits and viatical settlements is that with ADB the policy owner must continue to pay the monthly premiums. With a viatical settlement, the purchaser of the policy takes over the monthly payments. For this reason, seniors might consider a viatical settlement instead. Read more about the pros and cons.

Death benefit loans, also called life insurance loans, are another option. With this type of low interest loan, a policyholder borrows against the cash value of their insurance policy. Borrowers are able to pay the loan back on their own schedule, or if they so choose, they don’t have to make payments. At the time of the policyholder’s death, the loan amount, plus interest, will be subtracted from the death benefit. Learn more about death benefit loans.

 

Eligibility Requirements for Accelerated Death Benefits

The qualifying factors for accelerated death benefits varies with both the policy issuers (the insurance company) and with the policy itself. The information that follows is typical of what an insurance company requires, but not necessarily accurate for all policies

Life expectancy is the primary factor considered by insurance companies. 

The policyholder's age does not impact their eligibility. Instead, the primary driver is their life expectancy. As mentioned previously, policyholders must have life expectancies of less than two years. In some cases, individuals with longer life expectancies are eligible provided they have a terminal illness.

In addition to personal eligible requirements, there are policy requirements. The greatest restriction is not the type of life insurance policy one has, but rather it's face value. Simply put, policies with face values lower than $25,000 are not worth the effort for the policyholder or the insurance company to engage in accelerated death benefits.

Marital status, income and assets, veteran status, and geographic location are not factors in determining eligibility for accelerated death benefits.

 

Benefits and Limits

There are no restrictions on how accelerated death benefits can be used. In most cases, families receiving ADB put those resources toward the cost of caring for their loved one but they are not required to do so. Benefits are most frequently paid out in a single lump sum. However, some insurance companies offer monthly installments. This is an important distinction in that while either option can impact the Medicaid eligibility of the policyholder or their spouse, a lump sum payment is much more likely to do so.

Accelerated death benefits can be as high as 95% of the death benefit. Typically, the insurance company sets a maximum benefit amount based on life expectancy, and the policyholder makes the final decision on how much of a financial advance they require. Accelerated death benefits are not taxed. 

 

Application Process

What to Expect

Applications for accelerated death benefits typically require a release of medical information so the insurance company can independently evaluate the life expectancy of the insured.  Benefits can be paid out in as few as 4-6 weeks.  Insurance companies do not charge policy holders to receive death benefits, although some companies now include a small fee to allow for this option when purchasing their policy.

How to Apply

Individuals wanting to receive accelerated death benefits should contact their life insurance provider directly.