life insurance

What Benefits Are Offered To Terminally Ill Policyholders

Accelerated death benefits are benefits offered to terminally ill policyholders who are in need of money. Either a lump sum payment, or monthly payments deducted from the policy's face value, may be offered by the life insurance company to the policyholder. They began in 1988 as a way of helping terminally ill AIDS patients collect part of their life insurance proceeds. Over time, it has expanded to illnesses that are terminal, chronic and catastrophic (amongst a few others).

What can trigger an accelerated death benefit?

• Terminal illness, chronic illness, or a physical condition is diagnosed where death is likely to occur within a set time
• Medical conditions, such as catastrophic illnesses or dread diseases, that will result in death, unless very extensive care and extraordinary medical treatment are given
• Long-term care in a nursing home, nursing facility, or at home, where the person is unable to perform daily activities, such as eating, drinking, dressing, bathing, toileting or continence
• Permanent nursing home confinement

Most life insurance companies will begin payment of accelerated death benefits if the policyholder's life expectancy is under one year. Depending on your life insurance company, accelerated death benefits can only be engaged if you have a catastrophic or dread disease, such as a heart-attack, stroke, coronary artery bypass surgery, kidney failure, or life-threatening cancer. Only a select few insurance companies will begin a payout of your accelerated death benefits if you have a major organ transplant, AIDS, loss of eyesight or a limb, or paraplegia. The income from accelerated death benefits is not subject to being taxed federally, and in some states, not even subject to state income taxes.

To be given the option of accelerating your death benefits, some companies do charge you a higher insurance premium, while others only charge if you do engage the option. Depending on the life insurance company and how their policy for accelerated death benefits is setup, the monetary advances may either be charged as a lien against the policy (where interest is charged on the advanced amount), or the loss from the policy being cashed in is taken from the amount advanced to you.

Limitations of accelerated death benefits
Depending on which insurance company you have, the amount of the accelerated death benefit you choose to engage in may be limited. To do this, restrictions will be made either on the percentage of the death benefit, or the total amount you receive. The typical form of payout is lump-sum distribution, but if your state restricts this, you will be offered monthly payments.

In most cases, an accelerated death benefit rider can be added at any time, but depending on which life insurance agency you go through, you may only have the ability to sign up for it upon purchasing your policy. If you're unsure whether your life insurance policy, be it group or individual, has an accelerated death benefit policy, be sure to contact your life insurance agent or life insurance company.

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