Life insurance policies come with a variety of benefits, and many others have the option of adding these benefits for an additional fee. These benefits are called Riders.
The Accelerated Death Benefit Rider is one that provides several types of protection to the policyholder. Such policies now provide you with protection and better control over your life insurance product.
The Accelerated Death Benefit Rider effectively provides you as the consumer with the ability to start or stop a stream of income derived from your life insurance policy when you have a qualifying need.
It is important to understand that with the increased cost of healthcare, Market demographics, and an improvement to financial education, your life insurance policy is now a single vehicle that provides a multitude of protection strategies.
How Does The Accelerated Death Benefit Rider Work?
This benefit is something that allows policyholders to receive part of their death benefit prematurely. Most of the time this is not something that you would need but if you become terminally ill and you are given up to one or two years left to live, you can take out a significant percentage of your life insurance death benefit in the form of cash which you can use to pay any medical bills associated with your terminal illness.
Originally terminally ill policyholders could use what was called a viatical settlement whereby they would sell their policy to a third-party settlement company for a percentage of the death benefit. That company would then give them money from the sale and would become the beneficiary of the policy.
This was a very cumbersome option and there was a lot of fraud. Regulators and the media took note of the financial consequences of these damaging settlements and introduced a more sophisticated product that allows you to take anywhere between 25% and 100% of your policy value if you are faced with a chronic or terminal illness diagnosis.
What Life Insurance Policies Offer This Rider?
The Accelerated Death Benefit Rider is now available on universal life insurance policies, whole life insurance, and some term life insurance policy.
In order to be eligible for this, you have to work with a company that offers the Accelerated Death Benefit Rider as part of your policy whether you take out a term or permanent policy. Some permanent policies come with this benefit already at no extra cost.
It is built into your policy at no extra cost. Instead, that cost is added to your premiums. If it is not automatically part of your policy you will have to pay extra to get this feature.
How Do You Qualify?
In order to qualify for use of this benefit, you will have to prove to the life insurance company that you have received a diagnosis for a terminal illness that falls under their particular list of qualifying terminal illnesses.
A sample list of conditions that might qualify for use of the Accelerated Death Benefit Rider includes the following:
How Is Accelerated Death Benefit Paid Out?
Once you qualify to use the feature you have the choice to determine how your benefits are paid. Depending on the type of benefit you have you might be able to take out 50% of your total death benefit either in the form of a lump sum or periodic payments.
If you have been given 12 months left to live you might work with your life insurance company to negotiate periodic payments on a monthly basis to pay monthly anticipated medical cost associated with your condition.
Conversely, you may get out a lump sum payment if you are unsure of what your total costs will be or how long you have left to pay those costs. The remainder of your death benefit will still go to your beneficiary once you pass away.
Who Is It Rider Best For?
This type of benefit is best suited for someone who might already have a heads-up about long term health concerns common in their family.
If, for example, you have a family history of cancer, particularly aggressive and unexpected cancer, even if your health is perfectly fine it might be in your best interest to make sure your life insurance policy has this benefit so that you can protect yourself in the event that something happens.
If you are a single parent with dependent children such a benefit could help offset the expensive cost of a chronic or terminal illness and allow you access to money so that you can spend your remaining time with your family in comfort.
How Much Does It Cost?
The cost of adding an Accelerated Death Benefit Rider to a policy that doesn’t have one already is going to be based entirely on the company, the face value of the death benefit, the type of policy, and the demographics of the policyholder. The cost can range anywhere between an extra $12 per month upwards to $30 per month.
The face value is going to restrict whether you can receive this benefit. If you have a policy with a face value that is lower than $25,000 it is not worth the effort for the insurance company or you as a policy holder to try to add this death benefit.
Pros and Cons of Accelerated Death Benefit Rider
1. Covers Costly Medical Bills in the Event of a Terminal Diagnosis
The accelerated death benefit rider covers some of the most expensive medical bills in the event of the worst possible type of diagnosis. It enables families to act quickly and in the knowledge that they have the funds available to try and fight diagnoses that are terminal or critical.
It also pays our death benefits while the insured is still alive which can usually take years to pay out, leaving families to front the costs of the bills up front if they do not have health insurance that covers them.
2. Relatively Inexpensive
For the amount of coverage you are getting with this type of life insurance rider compared with the cost, it is typically a no-brainer add on for people who can afford it.
1. Not Disability Income Replacement
You need to be cognizant of the fact that these policies and features are not a substitute for something like disability insurance or health insurance.
2. Death Benefits are Sometimes Subject to Taxation
There is also a possible taxation on any of the money you take out. The benefits are typically not taxable that this can change based on the type of claim you have, the type of benefit, the state in which you live, and your life insurance carrier.
More importantly, receipt of accelerated benefits could impact Medicaid because the income is often counted as income for tax purposes.
3. You May Never Have Use for the ADB Rider
While this is an argument against the Accelerated Death Benefit Rider, the reality is you would rather have it and not need it than need it and not have it.
On top of that, if you have term life insurance coverage, this argument is moot because you likely never want to have to use your life insurance coverage anyways, and outlive your term. If you have permanent life insurance, you arguably can afford the small extra fee for the additional financial protection to your family in the event of an unforeseen terminal or critical diagnosis.
4. It Only Provides Part of Your Death Benefit
The accelerated death benefit only offers you a portion of your death benefit in the case of a terminal or critical diagnosis.
This is something to weigh into your decision making when it comes to choosing the best policy riders for your life insurance policy.
Best Companies for the Accelerated Death Benefit Rider
|Company||A.M. Best Rating|
|Ameritas (FLX Living Benefits Products)||A+|