What is an accelerated death benefit (ADB)?
An accelerated death benefit (ADB) is a rider attached to a life insurance policy that allows the owner of the policy to receive a lump sum cash advance on a portion (25-95%) of the death benefit if the insured is diagnosed with a terminal illness. Depending on the company, the benefit is available if the insured is diagnosed as terminally ill and has 12 months or less to live, with some companies offering a 24 month ADB rider.
Why is an accelerated death benefit important?
If you are diagnosed as terminally ill, the cash advance from the insurance policy’s death benefit can be used for anything you need or want to make you final days as peaceful as possible. Some people choose to use the benefit to pay for in home care, take care of final expenses, get their estate in order, or even to take a vacation.
What is the definition for “terminal illness?”
Terminal illness is a medical condition that:
- Is diagnosed by a legally qualified physician;
- With reasonable medical certainty will result in death within 12 or 24 months (depending on the carriers);
- That medical professionals cannot cure by any means available
Proof of Terminal Illness
Upon receiving a diagnosis of terminal illness, the insurance company may require confirmation in the form of an examination by a physician of the company’s choice, at the company’s expense. Typically this must take place within 90 days after the owner receives notice of this requirement.
Does my life insurance policy have an accelerated death benefit rider?
Often the ADB rider is a standard feature of a life insurance policy. If your policy does not have an ADB rider, most companies will allow you to add it as an additional life insurance rider.
Requirements for Acceleration of Death Benefit
Most companies will request the following before the accelerated death benefit payment can be made:
- The owner makes a written request for payment;
- The insured signs a release of his or her medical records;
- Any assignee and any Irrevocable Beneficiary provide written consent; and
- Proof of terminal illness.
Is an accelerated death benefit taxable?
Normally, the cash advance from the accelerated death benefit is not taxable in the same way the normal life insurance death benefit is not taxable.
Other riders to consider
Along with the often included accelerated death benefit rider, the following living benefit riders should also be considered:
Another option to consider is life insurance with long term care (LTC). With this rider attached to your policy, cash benefits are paid out income tax free after meeting the requirements.
Generally, the requirements are that you are unable to perform 2 of the 6 Activities of Daily Living (ADL’s). The 6 ADL’s are Continence, Bathing, Eating, Dressing, Toileting, and Transferring (getting around). Cognitive disability is an additional qualifying event that triggers a long term care rider.