Let’s face it – even though we try, it’s hard to plan for everything perfectly. But, having specific riders attached to your standard life insurance package can greatly boost the policy’s utility and overall effectiveness both during and after death.
When it comes to the insurance industry, riders are optional provisions designed to either add to or amend a basic insurance policy’s offerings. In general, riders are an ideal way to further customize insurance coverage to fit a policyholder’s specific needs.
Commonly coupled with more permanent life insurance coverage, the accelerated death benefit rider is one of the more beneficial provisions you can attach to a standard policy. The rider’s benefits readily aid the primary insured while they’re still alive.
Life happens, so considering this rider may help you and your loved ones financially prepare for any unexpected events, such as a terminal illness in the family.
What Is An Accelerated Death Benefit (ADB) Rider?
In short, if an insured has been legally declared terminally ill with a time frame of 12-24 months or less to live, they will be granted access to a portion of the death benefit proceeds while living.
This rider is also referred to as a living benefit rider for this exact reason.
Originally extended to HIV/AIDS victims, the accelerated death benefit rider was eventually applied to other common terminal illnesses, such as various types of cancer or amyotrophic lateral sclerosis (ALS).
In some cases, the insured may be legally declared chronically ill in order to take advantage of ADB rider benefits.
With the ADB rider, it’s not necessarily the age of the insured that’s weighed by insurance providers, but the estimated life expectancy of the policyholder.
Unlike other riders, though, income, marital status, and geographic location, among other relevant factors, do not impact the accelerated death benefit eligibility process.
Depending on which insurance carrier you’re working with, certain medical records may need to be released during the application process to help determine life expectancy.
Death Benefit Proceeds
The amount you’re granted access to largely depends on the insurance carrier and the type of policy in question. Nonetheless, the most common amounts are 25% of the policy death benefit amount, with a minimum of $25,000 and a maximum of $250,000.
Some proceeds are greater by both percentage and amount, and the trend seems to be moving in this direction.
The amount taken will ultimately be deducted from the final death benefit amount, but ADB benefits are usually not taxable.
The best life insurance companies you can work with, if the accelerated death benefit rider is valuable to you and your family, are the ones that automatically include this provision at no additional premium.
Not all insurance carriers offer the ADB rider, but a vast majority of them do. More than 150 insurers have this provision on hand at your convenience, so conduct market research to see which insurance provider is right for you.
Accelerated Death Benefit Considerations
Even if you are not declared terminally ill, under some circumstances you may have limited access if you are in a position where you would require extensive medical care over a long period of time to stay alive. There are certain health conditions that are very treatable, but can turn deadly if gone untreated.
The ADB rider can help offset the high costs of extensive medical care, such as in-home care, assisted living arrangements, or hospice, if necessary. This is not to say the rider should replace any valuable cancer policies, long-term care policies, or catastrophe policies also available in the marketplace.
If, in a rare case, you were to recover and no longer be declared terminally ill, you wouldn’t be required to repay the money to the insurance company. For example, if an end-of-life patient opts for experimental treatments, this route could end up saving their life.
There have been cases reported where a person has some sort of inoperable tumor, rare cancer, or even a disease which little is known about with a high fatality rate, yet they’ve made a full recovery and lived a long life.
Instances where a false claim has been made may result in serious legal ramifications for those involved. Therefore, it’s important to file insurance claims as accurately and efficiently as possible to avoid any legal consequences.
While it seems like a no-brainer to take this benefit into consideration, there are unique situations where it could pose as a threat to other types of benefits policyholders often count on.
Other medical or terminal types of insurance programs, namely Medicare/Medicaid or long-term care insurance, could be affected by attaching an accelerated death benefit rider. Benefits could be limited due to the immediate access to funds characterizing this specific provision.
In the case of Medicaid, utilizing the accelerated death benefit rider could be viewed as current income, while Medicaid benefits or supplemental Social Security benefits could be throttled.
Do know that policyholders are not required to use the living benefit rider, so understanding how it might affect Medicaid or other LTCi policies is crucial.
Opting to take the proceeds now as opposed to later on could also impact what the intention of the insurance policy was at its origination.
Accelerated Death Benefit or Viatical Settlement
If a life insurance policy was taken out for any specific purpose, it may be in the best interest of the insured to go ahead and find other comparable sources of funding.
Let’s say, for example, a business owner’s term life insurance policy had the accelerated death benefit rider attached. In this case it would not be appropriate to take a large portion of the payout now if it were collateral for a loan.
However, one could argue that the availability of the accelerated death benefit rider’s proceeds might mean being able to avoid a viatical settlement. This type of settlement ultimately yields a lower total amount of benefit for the insured.
In a viatical settlement, a portion, usually a state percentage, of the death benefit is paid immediately, but there is no residual amount.
Upon death, the proceeds now pay in full to the third-party purchaser of the settlement, not the originally assigned primary beneficiary.
The Bottom Line
If you suffer from a terminal illness now or believe you may suffer from a terminal or chronic illness in the near future, the accelerated death benefit rider could be your saving grace.
Although these are tough situations for any family to go through, investing in a living benefit early on can help terminally ill patients and their loved ones handle expensive medical bills or other extended financial obligations.
For those who receive insurance benefits through an employer or union, you may want to check with your benefits administrator to see if the accelerated death benefit rider is available through the insurance company they use.
Members of the armed forces are granted access to these benefits through their government-issued plans.
No matter what provision in question, it’s always a good idea to work with a professional tax advisor and licensed insurance agent to ensure only the best riders are considered for your unique circumstances.
Consult with these professionals to assemble an ideal living benefit package for you and your family without breaking the bank in the process.