Accelerated Death Benefit: Definition & Provisions

Instructor: LeRon Haire
The lesson will discuss the importance and purpose of the accelerated death benefit for insurance as well as discussing the two primary provisions for the accelerated death benefit and how to sign up.

Insurance and the Accelerated Death Benefit (ADB)

Accelerated Death Benefits allow cash to taken against a policy for terminal illnesses.

Printers and ink cartridges; shoes and laces; cars and fuel. What do these comparisons have in common? They are all considered things that complement each other. By complementing, this means that when paired together, they work to serve a unique purpose. Another unique complement is insurance and the accelerated death benefit.

The Accelerated Death Benefit (ADB) can best be described as a provision placed on an insurance policy that allows someone with a terminal illness to withdraw funds from their life policy in order to help with any medically-related expenses. Like many policies, the Accelerated Death Benefit can be added on as a rider, which is a term meaning that a provision or benefit can added onto an insurance policy, typically for an additional cost.

Since each insurance company has different policies, it's important that each policyholder first check with their insurance provider as to the process of adding a rider. Let's take a look at two of the major provisions of the Accelerated Death Benefit, which are providing financial assistance and providing money to beneficiaries upon death.

Financial Assistance Provision

The initial purpose of the Accelerated Death Benefit (as stated by the definition) is to provide financial assistance to those with a policy who have been diagnosed with a terminal illness. Obviously, the diagnosis of a terminal illness must be qualified through a medical doctor in order to be considered accurate and sufficient.

Typically, a terminal or chronic illness is one in which the policyholder's life expectancy is within a specific range, meaning that the insured has been given a specific amount of time before they are expected to pass away. The financial assistance can be used for several things including the following:

  • Lodging and food for medically-related illness visits
  • Exams
  • Doctor and hospital visits
  • Home health care (such as nurses)
  • Nursing home or hospice care

The money borrowed from the policy does not have to be repaid by the policyholder or by any beneficiaries upon death of the insured. Some insurance companies may choose to charge interest for the money that they may have earned if the cash were not withdrawn by the insured.

Beneficiary Cash After Death with ADB

Accelerated Death Benefits are very unique in the fact that upon the death of the insured, the beneficiaries do not have to pay anything back that was withdrawn. In fact, the beneficiary will receive the difference between what was withdrawn by the insured while living and what was designated by the benefit. Let's look at an example for more clarity.

Let's assume that Betty has a life insurance policy worth $20,000. After being diagnosed with a terminal illness, she uses $5,000 through the accelerated death benefit before she passes away. The beneficiary will receive $15,000, which is the difference between the policy and what was actually used. It is important to note that if all funds are depleted by the insured while living, then there will be no money available for the beneficiary once the insured passes away.

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