What is an accelerated death benefit rider?

An accelerated death benefit is a life insurance policy provision in which you can get your death benefit while alive to pay for medical care.

Written by Lindsey Danis / June 14, 2022

An accelerated death benefit can be a comfort if you have been diagnosed with a terminal illness.
You will be able to access your death benefit while you are still alive in order to pay off medical bills and other costs.

An accelerated death benefit is a life insurance policy provision that accelerates or speeds up the death benefit if the policyholder is diagnosed with a terminal illness.

Essentially, you get access to the money while you are alive so you can use it to pay for medical care or other needs. It can be a great comfort in a terrible time of need for you and your family.

An accelerated death benefit is a provision that allows you to receive part of your life insurance benefit early, provided you meet qualifying criteria.

Most often, this is a shortened life expectancy where you have six to 12 months to live, says David Hillelsohn, president of DHill Financial, an independent insurance firm.

The amount of the accelerated death benefit depends on the policy, but Aetna says it’s common to get anywhere from 50% to 80% of the policy value in an accelerated death benefit.[1]

Let's say you receive a terminal cancer diagnosis with a life expectancy of 8 months. You need help paying your bills and mortgage since you can no longer work.

Your policy will outline the details of how to claim an accelerated death benefit, any tax considerations to note and restrictions on using the money (usually, there are none).

“You would file a claim, no different than a death claim” except that “instead of the beneficiary starting the process it is the insured themselves,” says Hillelsohn. The insurer would then pay out the benefit to you.

"In life, it’s always good to have options," says Hillelsohn. The accelerated death benefit can help pay for things like:

Hospital bills
Experimental treatment
Care of dependents
Daily living expenses

Let's state the obvious: If you're activating an accelerated death benefit, chances are you're not happy to be near the end of life, so that is a major downside. There are others to note.

These benefits can be counted as income.[2] This can affect your eligibility for public assistance programs, including drug assistance programs or Medicaid. They can also impact your family's ability to receive public assistance, which is a serious disadvantage.

If you or your family relies on public assistance, it’s a good idea to consult a tax advisor before filing for the accelerated death benefit.

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You also may have already earmarked the death benefit for something else, like care of your dependents after you die. Accelerating the death benefit means a majority of the benefit cannot be used for its original purposes. So if you were planning on using the benefit to pay off a mortgage upon your death so your surviving spouse could live in the family home, this may be off the table.

Lastly, there may be tax consequences to accelerating the death benefit, whereas life insurance "is typically paid tax free," says Hillesohn.

Individuals with a family history of terminal illnesses may want to opt for an accelerated death benefit option.

Those with a family history of chronic illness will also want to consider the accelerated death benefit, but should read the policy language closely to see how chronic illnesses are treated. If they aren’t covered directly, a chronic illness rider can be added to the policy.

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A woman with a family history of deadly breast cancer may want the accelerated death benefit because she is at a higher risk for developing breast cancer than a woman with no family history of the disease.
A man whose father suffered from Alzheimer's disease may want to consider an accelerated death benefit, alongside a chronic illness rider. This rider would allow the accelerated death benefit to be used should the insured be diagnosed with Alzheimer's.[3]

Accelerated death benefit riders (riders are optional features you can add to your policy) can cover specific conditions. Types of riders to consider include:[4]

Long-term care insurance rider, which pays benefits if the insured needs long-term care services for a qualifying period of time
Critical illness rider, which provide benefits upon the diagnosis of a named illness
Chronic illness rider, which kicks in if the insured has a severe cognitive impairment or cannot perform sufficient activities of daily living, like dressing themselves independently

The accelerated death benefit is a relatively recent provision. It was developed in the 1980s to help terminally ill AIDS patients pay for needed care and daily living expenses.[5]

Who determines the amount of accelerated death benefits?

Insurers specify the amount of accelerated death benefit, which is typically listed as a percentage of the amount and often comes with a cap, say $1 million. States may also set their own provisions on the amount of accelerated death benefits.

Do you have to pay taxes on accelerated death benefits?

It depends. If you are terminally ill, you will not have to pay taxes on accelerated death benefits. Chronically ill people may be taxed on accelerated death benefits, according to the American Council of Life insurers.[2]

“Accelerated Death Benefit Fact Sheet.” Aetna. https://www.aetna.com/document-library/individuals-families-health-insurance/document-library/accelerated-death-benefit-fact-sheet.pdf
“Accelerating Life Insurance Benefits.” American Council of Life insurers. https://www.acli.com/Consumer-Info/Life-Insurance/Accelerating-Life-Insurance-Benefits
“Accelerated Death Benefit Endorsements for Term Life Insurance.” Midland National. https://www.midlandnational.com/documents/35453/7812132/501MM-2CA+ADBE+for+Term+Consumer+Brochure.pdf/2cc58960-3f2f-aad2-e3eb-fcd681dda75a
“Living Benefit or Accelerated Death Benefit Rider Options.” Society of Actuaries. https://www.soa.org/news-and-publications/newsletters/newsdirect/2014/may/ndn-2014-iss68/living-benefit-riders-or-accelerated-death-benefit-rider-options/
“What is an Accelerated Death Benefit?” Harbor Life Settlements. https://www.harborlifesettlements.com/what-is-an-accelerated-death-benefit/

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