You buy life insurance to protect those who depend on you for financial security. If you die prematurely, it's your life insurance that can provide your dependents with the ongoing income they'll need to live on when your income ceases to exist, as well as immediate funds to cover your final expenses. But did you know that your life insurance policy may also provide you, the policy holder, with certain living benefits that you could tap into in the event you become seriously ill? It's called an accelerated death benefit (ADB) rider.
What is an accelerated death benefit rider?
An ADB policy rider would allow you to receive a portion of your life insurance benefit early — to use while you are still alive. The ADB rider is sometimes a standard feature of a life insurance policy, however, some insurers may require an additional premium if you want to add the coverage.
How does an accelerated death benefit work?
With an ADB rider, you can generally get a portion of the death benefit of your life insurance policy to help offset costs associated with a chronic illness or terminal medical condition, and costs for long-term care.
For example, if you were to be diagnosed with terminal cancer, and your policy had an accelerated death benefit rider, you may be able to access a portion of the funds from your life insurance benefit to help you for things like in-home nursing or hospice care. The death benefit would be reduced by the amount paid out under the accelerated death benefit rider, and the reminder paid to your beneficiaries upon your death.
When can an accelerated death benefit be triggered?
According to the American Council of Life Insurers, accelerated benefits can range from 25 to 95 percent of your policy's death benefit, and are typically triggered by the following medical circumstances:1
- A terminal illness with death expected within 24 months
- An acute illness, such as acute heart disease or AIDS, which would result in a drastically reduced life span without extensive treatment
- A catastrophic illness requiring extraordinary treatment, such as an organ transplant
- If long-term care is needed because you cannot perform a number of daily living activities, such as bathing, dressing, or eating
- If you must be permanently confined in a nursing home
Generally, there are no restrictions as to how your ADB could be used. For example you could use it to help pay for hospital bills, medications, treatments, etc. However, it's always a good idea to check with your insurer to see what may be excluded.
It's important to keep in mind that the benefits from an ADB rider are limited, must meet requirements that may vary by insurere, and are meant to alleviate end-of-life financial hardship. They are not meant to replace comprehensive health or long-term care insurance, which are designed to cover medical and long-term care costs.
Many life insurance policies will allow you to include certain life insurance riders that can enhance your coverage for certain risks. Be sure and check with your agent or company representative to see what type of policy benefit riders you may have available.