Accelerated Death Benefit
An accelerated death benefit is a life insurance policy provision that allows terminally ill policyholders to receive a portion of their death benefit while still living, typically when diagnosed with a terminal illness with 12-24 months to live.
Exam Tip
ADB = living benefit for terminal illness. Usually 50-80% of death benefit. Tax-free if terminally ill. Reduces death benefit!
What is an Accelerated Death Benefit?
An accelerated death benefit (ADB), also called a "living benefit," allows life insurance policyholders to access a portion of their death benefit early if diagnosed with a terminal, chronic, or critical illness. This provides funds when they're needed mostāduring a medical crisis.
Qualifying Conditions
| Condition | Typical Requirement |
|---|---|
| Terminal Illness | Life expectancy of 12-24 months |
| Chronic Illness | Unable to perform 2+ ADLs for 90+ days |
| Critical Illness | Heart attack, stroke, cancer, etc. |
How It Works
| Step | Description |
|---|---|
| 1 | Policyholder is diagnosed with qualifying condition |
| 2 | Submit claim with medical documentation |
| 3 | Insurance company verifies condition |
| 4 | Receive percentage of death benefit (50-80% typical) |
| 5 | Remaining death benefit paid to beneficiaries at death |
Types of Accelerated Benefits
| Type | Trigger |
|---|---|
| Terminal Illness | Expected death within specified period |
| Chronic Illness | Cannot perform daily living activities |
| Critical Illness | Specific diagnosed conditions |
| Long-Term Care | Need for extended care services |
Financial Considerations
| Factor | Impact |
|---|---|
| Discount | Benefit may be reduced by interest/fees |
| Death Benefit | Reduced by amount accelerated |
| Tax Treatment | Generally tax-free if terminally ill |
| Medicaid | May affect eligibility for government benefits |
ADB vs. Viatical Settlement
| Feature | Accelerated Death Benefit | Viatical Settlement |
|---|---|---|
| Who Pays | Insurance company | Third-party investor |
| Ownership | Policyholder retains | Ownership transfers |
| Amount | Fixed percentage | Negotiated price |
| Remaining Benefit | To beneficiaries | To investor |
Common Uses
- Medical expenses and treatments
- Hospice and end-of-life care
- Paying off debts
- Quality of life improvements
- Family support
Study This Term In
Related Terms
Death Benefit
InsuranceA death benefit is the amount of money paid to beneficiaries upon the death of an insured person, typically the face amount of a life insurance policy.
Rider (Insurance)
InsuranceA rider is an optional add-on to an insurance policy that provides additional benefits or modifies coverage for an extra premium, allowing policyholders to customize their protection beyond the base policy.
Beneficiary
InsuranceA beneficiary is a person or entity designated to receive the death benefit or proceeds from an insurance policy or retirement account.