Accelerated Death Benefit
What Is An Accelerated Death Benefit?
An Accelerated Death Benefit, may also be known as Accelerated Life Insurance Policy, under which part of the death benefit of your life insurance policy (usually 25% or more) becomes payable to the policy owner for a specific medical condition prior to death.
If a person finds out that they have a terminal illness and have 6 months to live, they may be able to receive 25% (or more) of their life insurance death benefit before they die. If the policy is for $1,000,000 – then the policy owner may receive up to $250,000 to use as needed.
The purpose of the accelerated death benefit is to provide funds necessary to pay for medical costs to extend the life of the insured.
Upon proof of a specific medical condition, the insurance company will pay 25% of the death benefit from the life insurance policy.
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When the insured person dies, the remainder of the death benefit is paid to the Beneficiary, just as under a traditional life insurance policy. The beneficiary is the person, chosen by the insured, to receive the proceeds of the life insurance policy.
Sometimes, as much as 80% of the death benefit, may be made available, at any time within the last year or two of the insured person’s projected life.
The money received from accelerated death benefits may be used by the owner of the life insurance policy for any purpose he or she chooses. The proceeds can be used to pay for medical care, to take a trip, to improve a home, hire nursing staff, or anything else.
Accelerated death benefits are benefits offered to terminally ill life insurance policyholders in need of money. You may receive either a lump sum, or monthly payments, which lower the amount of proceeds that will be paid on your life insurance policy.
Accelerated benefits began in 1988 as a way to help AIDS patients who were terminally ill. This allowed them to collect part of their life insurance proceeds while still alive, in order to help pay for medical expenses.
Over time, this coverage has been expanded to include illnesses that are chronic, terminal, or catastrophic.
What Type of Event May Trigger Accelerating Death Benefits?
- Terminal illness, chronic illness, or a physical condition is diagnosed where death is likely to occur within a set timeframe, usually 1-2 years.
- Medical conditions, such as catastrophic illnesses, that will result in death, unless very extensive care, and extensive medical treatment are provided.
- Long term care in a nursing home, nursing facility, or at home, where the person is not able to perform daily activities, such as eating, drinking, dressing, bathing, or going to the bathroom.
- Permanent nursing home confinement.
To be given the option of accelerating your death benefits, some companies do charge you a higher life insurance premium, while others only charge if you do engage the option.
Am I Charged For This Coverage?
Depending on the life insurance company and how their policy for accelerated death benefits is setup, the monetary advances may either be charged as a lien against the policy (where interest is charged on the advanced amount), or the policy proceeds are lowered by the amount advanced to you while alive.
Are There Limitations on the Accelerated Death Benefits?
Yes, depending on your life insurance company, there may be limits on your accelerated death benefit.
There may be a specific amount limit, or percentage of the life insurance policy proceeds that you are limited to take.
The basic form of payout is a lump sum, but depending on your state, you may be offered monthly payments.
You may be able to add an accelerated death benefit rider to your life insurance policy at any time, depending on your insurance company. Make sure to ask about this option when purchasing your life insurance policy.
There may or may not be an additional charge for this coverage. Ask about it when getting a quote for your coverage.
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