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.
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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 most—during 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
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Death Benefit
A 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)
A 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
A beneficiary is a person or entity designated to receive the death benefit or proceeds from an insurance policy or retirement account.
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