What are Accelerated Death Benefits?
ADB is a death benefit rider attached to the insured’s life insurance policy that provides for the possibility of the insured receiving cash advances if he or she has been diagnosed with a terminal illness and is expected to die within two years. An insured will also qualify for ADB if he or she has a disease or illness that is expected to reduce his or her lifespan. For these reasons, the accelerated death benefit provision in a life insurance policy is also known as a “terminal illness benefit.”
ADB is a type of “living insurance” because the insured can cash out part or all of the death benefit while living. Often the funds are used for medical treatment, such as an organ transplant, or hospice care, or in-home care if the insured has trouble with everyday activities.
There are life insurance policies that make an accelerated death benefit available to an insured even though ADB is not expressly provided for in the policy.
How Do Accelerated Death Benefits Work?
This type of living benefit was created in the 1980’s as a way for those diagnosed with AIDS to afford treatment and care, while retaining some death benefits for their beneficiaries.
The amount that the insured takes out is subtracted from the total death benefit, and the remainder passes to the designated beneficiaries upon the death of the insured. Some policies provide that the ADB can be borrowed from the total death benefit rather than taken from it.
How Can I Apply for an Accelerated Death Benefit?
If you have an ADB rider and you have been diagnosed with a terminal illness, you must provide proof of that diagnosis to your insurance company. If your policy does not expressly provide for ADB, your insurance company might still pay them. Contact a life insurance beneficiary lawyer to help you.
Are Accelerated Death Benefits Taxed as Income?
No. ADB are usually tax-exempt for those who are expected to die within two years.
Say a 42-year-old non-smoker named Lucy has a $800,000 life insurance policy. Lucy was diagnosed with metastasized breast cancer. She decides to accelerate half of her life insurance policy and collect that benefit herself while living to provide for continuing medical care and other assistance when that becomes necessary.
Lucy’s life insurance company reviews her claim and offers an accelerated payment of $207,000. Lucy accepts and receives a check for $207,000. Her death benefit has decreased by the amount she accelerated ($400,000) and Lucy pays lower premiums on the new face value of the policy of $400,000. Lucy does not pay income tax on the accelerated benefit.
Contact an ADB Lawyer
If you’ve been diagnosed with a terminal illness and your ADB life insurance claim was denied, contact us. We can initiate litigation or negotiate with your insurance company on your behalf and get you the money you need for treatment and care.