Accelerated Death Benefits: Using Life Insurance While Living
Many life insurance policies let you access part of the death benefit if you're terminally, chronically, or critically ill. Here is how accelerated benefits work, what they reduce, and the trade-offs.
An accelerated death benefit lets a policyholder receive part of a life insurance death benefit while still alive, under specific medical conditions. It's often built into policies or added as a rider. It can help pay for care, medical costs, or living expenses during a serious illness.
Common triggers
| Trigger | Typical definition |
|---|---|
| Terminal illness | Life expectancy limited to a set period, often 12 or 24 months, certified by a physician |
| Chronic illness | Unable to perform a set number of activities of daily living, or severe cognitive impairment |
| Critical illness | Diagnosis of specific conditions listed in the policy, such as certain heart attacks, strokes, or cancers |
Definitions vary by policy and state.
How payments affect the policy
Accelerating benefits reduces the death benefit that beneficiaries receive. Depending on the policy, the insurer may also apply a discount, fee, or lien, so the amount you receive can be less than the reduction in the death benefit.
A hypothetical $500,000 policy where the insured accelerates $200,000:
Show the numbers behind this chart
| Amount | |
|---|---|
| Accelerated to insured | $200,000 |
| Remaining for beneficiaries | $300,000 |
Things to consider
- Taxes: accelerated benefits for terminal or chronic illness may be tax-free under federal law if certain requirements are met. Get tax advice.
- Public benefits: receiving a lump sum can affect eligibility for means-tested programs like Medicaid.
- Beneficiaries: the remaining death benefit is smaller; discuss with family where appropriate.
- Alternatives: long-term care insurance, hybrid policies, policy loans, or selling a policy can address similar needs with different trade-offs; see long-term care insurance.
Questions to ask about any policy
- Is an accelerated benefit included, or is it an optional rider?
- What conditions trigger it, and how are they defined?
- What's the maximum percentage that can be accelerated?
- Is there a fee, discount, or lien?
- How are the death benefit and premiums affected?
The takeaway
Accelerated death benefits let you use part of a life insurance policy during a terminal, chronic, or critical illness. They reduce what beneficiaries receive and may have costs. Know whether your policy includes this feature and how it's defined before you need it.
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