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An accelerated death benefit (ADB)—also referred to as a living benefit—is a feature of a life insurance policy that pays a percentage of the death benefit early (up to the full benefit in some cases) if qualifying conditions are met.
Being diagnosed with or living with a serious illness can, at best, be difficult. An accelerated death benefit feature on a life insurance policy gives you the option to access some of the death benefit early, if you qualify.
Depending on policy specifics, that could be if you become terminally ill, chronically ill, or critically ill; require long-term care; or experience any of these conditions. (This might be the case if the policy contains multiple riders or if one rider covers multiple events.) Benefits eligibility and limits vary by insurer and by state.
One or more ADBs may be included as standard policy features or available as optional riders, some at additional cost, on both permanent and term life insurance policies. ADBs are most typically available on new policies only. They are not considered a form of insurance themselves, but function as an acceleration of the death benefit if exercised.
Life insurance policies with living benefit riders pay you—as prepayment of the death benefit—while you’re alive if you develop an eligible condition. You may only be able to purchase riders at policy issue, or, less commonly, you may be able to add them at a later date. For example, you might choose to purchase a terminal illness rider that requires a diagnosis of 24 or fewer months to live, as opposed to settling for the standard feature that requires a six-month diagnosis to accelerate the death benefit.
When an ADB is exercised—meaning activated—the insurer pays the funds out of the policy’s death benefit, and when the insured dies, the beneficiary receives what’s left.
The death benefit may be reduced by an amount greater than the ADB amount paid to account for the early payment and any service fee charged for exercising the rider.
ADBs can pay a percentage of the policy’s death benefit, generally ranging from 25% to 100%, in one lump sum or as an ongoing monthly benefit. For instance, a terminal illness ADB might provide a one-time payment of 75% of the death benefit, while an LTC rider could provide a monthly benefit but limit the total benefit paid to a specific dollar amount.
ADBs can also limit the amount of money paid for certain types of care: An LTC rider might pay up to 2% of the death benefit per month for nursing home care, for example, but only 1% per month for home health care.
Receiving funds from an ADB can affect your eligibility for Medicaid or other public assistance services. And benefits—though intended to qualify as a “death benefit” under IRS code (and therefore not be taxable)—may or may not have federal and state tax consequences. This depends in part on certain factors, including your life expectancy, the amount of “qualified” expenses you’ve incurred (such as qualified long-term care expenses), and the amount of benefits received.
Because federal and state tax laws are subject to change and tax laws related to accelerated benefits are complex, consult a tax advisor before exercising benefits.
Benefit limits and the circumstances in which you can access the features of an ADB vary. But generally, accelerated death benefits can be divided into four categories with typical triggering events:
| Type of Benefit | Triggering Event | Type of Payment |
| Chronic illness | You’re diagnosed with a chronic illness that is considered nonrecoverable. (You’re unable to perform at least two activities of daily living, like bathing, dressing, and feeding yourself, or you suffer severe cognitive impairment and require substantial supervision.) | Lump-sum payment |
| Long-term care | You’re unable to perform at least two activities of daily living, like bathing, dressing, and feeding yourself, or you suffer from severe cognitive impairment. You may not need to be deemed chronically ill—in some cases, conditions from which you can fully recover may be eligible. | Subject to an elimination period before benefits eligibility, such as 90 days for a monthly benefit |
| Terminal illness | You’re diagnosed with a terminal illness and a life expectancy of less than six months to two years, with the time period depending on the specific rider and insurer. | Lump-sum benefit |
| Critical illness | You’ve experienced a qualifying condition, such as a major heart attack, an invasive cancer, paralysis, major organ transplant, or end-stage renal failure. | Lump-sum benefit |
A life insurance policy with a chronic or LTC rider can be an option for people who don’t qualify for long-term care insurance. For instance, diabetics may not qualify for long-term care insurance but may qualify for a term life insurance policy.
Many insurance providers include one or more ADBs as a standard feature in new life insurance policies, but they may also offer enhanced living benefits at an additional cost, usually calculated as a percentage of the base premium. Some providers that include an ADB (without an extra charge) will discount the acceleration of the death benefit, depending on a number of variables, including the insured’s age, gender, and policy specifics like cash value, and they may also charge a service fee if exercised.
Although ADBs are common with permanent life insurance policies, like whole life and universal life insurance, some insurers also include them in term life policies or make them available for purchase. Typically, providers offer ADB riders when you purchase a new life insurance policy, but some carriers allow you to add one to existing coverage.
Tapping an accelerated benefit is a good option to have, but it may not always be the best choice, especially if it would trigger tax consequences or affect your eligibility for Medicaid. Plus, the benefit your beneficiaries receive will be reduced or even entirely eliminated. Depending on your financial circumstances, you may want to choose another alternative.
