An Accelerated Death Benefit is a provision in nearly all life insurance policies. It allows a policyholder with a terminal illness, usually with a life expectancy between six months and two years, to access a portion of the death benefit early to be used while they are still alive. The money you receive from an Accelerated Death Benefit rider is then deducted from your total death benefit.
In most cases, the Accelerated Death Benefit is included as part of your life insurance policy at no additional cost to you. However, in order to qualify for it, you must provide medical proof of a terminal diagnosis.
How It Works
You can use life insurance money collected through an Accelerated Death Benefit to pay for whatever you require, such as needed medical care, medications, private home care, hospice, or experimental treatments. You can even use the funds for non-medical needs, such as day to day living expenses. As a rule, you can withdraw up to 50% of your death benefit, but that percentage varies from insurer to insurer. The balance of your death benefit is still paid to your beneficiaries once you pass.
You do not have to pay federal income tax on any money you receive from an Accelerated Death Benefit rider.
Rather than withdrawing money from your life insurance policy through an Accelerated Death Benefit, consider selling your policy instead. As a policyholder, you are legally permitted to sell your whole life insurance policy to a third party for a one-time cash payment. In the case of a policyholder with a terminal diagnosis, this is called a viatical settlement.
To meet the requirements for a viatical settlement, you must have a terminal diagnosis, usually with under two years to live; a policy that’s been in force for at least two years; and a death benefit of at least $100,000. The age of the policyholder does not matter in the case of a viatical settlement.
The way a viatical settlement works is that the third party—preferably a licensed, reputable life/viatical settlement company—gives you a cash payment of, on average, 50% to 70% of your life insurance policy’s face value. In exchange, they assume your insurance premiums, and then collect your death benefit upon your death.
By using the option of a viatical settlement rather than accepting an Accelerated Death Benefit, you’ll immediately receive a large influx of cash that you can use in any way you see fit.
A Life/Viatical Settlement Company
A settlement company can explain the entire process to you and help you decide if a viatical settlement is the right choice for your situation.