Most people associate life insurance with a lump-sum payment to beneficiaries at the time of an insured’s death. And while that’s how the product is used most, there are times when an insured may need their policy benefits while they’re still alive.
That’s when an accelerated death benefit option comes into play. This provision allows covered individuals who have been diagnosed with a terminal illness to access up to 80% of their policy’s standard death benefit to help cover expenses like medical bills or end-of-life care.
Here are 4 things to know about accelerated death benefit options:
When are accelerated death benefits available?
Generally, an accelerated death benefit can be requested if an individual with a terminal illness or injury is expected to pass away within 6 to 24 months. It’s important to look into state and carrier specific provisions; states vary in how many months constitute a terminal illness and oftentimes carriers limit these benefits to a diagnosis at age 60 or below.
What happens after benefits are approved?
If the accelerated death benefit has been approved, the insured will receive benefits in a lump sum or other method as outlined in their company’s policy. Once they have the benefits, they’re welcome to use them any way they’d like.
Something to keep in mind is that for every dollar paid in advance, that’s one less to be paid out to the insured’s beneficiary at the time of death.
Costs and other considerations
A full disclosure of costs and tax implications should be provided during open enrollment, but generally an accelerated death benefit option is either included in a group policy’s premium or added to the policy as a percentage of the base premium.
Before filing for accelerated death benefits, insureds should consider the following:
- Medicaid eligibility: Taking accelerated death benefits may be considered income and therefore impact eligibility for Medicaid benefits.
- Long-term care needs: Accelerated death benefits can provide long-term care support, but shouldn’t be used to replace long-term care insurance, which provides benefits without depleting life insurance proceeds.
For more information about accelerated death benefit options, read our Inside Track educational paper or talk to your group life insurance representative.