Understanding Accelerated Death Benefit Features in Life Insurance 

Life insurance is often seen as a product that only initiates a payment when the insured passes away. An accelerated death benefit, often available as an insurance rider, means that the insured may be able to tap into their financial death benefit before they die; this is also referred to as a ‘living benefit.’

Some life insurance companies include an accelerated death benefit as a built-in product feature. However, it can also be an optional insurance rider added to a policy at an additional financial cost.

Generally, the insured must have been diagnosed with a qualifying condition or illness to claim the accelerated death benefit, and the insurer may require evidence of their illness or prognosis. An advantage is that insureds may be able to use their accelerated death benefit to assist with medical costs and help ease financial strain on loved ones.

Either selecting a life insurance product with an accelerated death benefit feature or purchasing a rider to add to your policy means that if you become unwell, you may qualify for a proportion of the policy’s death benefit–rather than having a death benefit that is only payable to your named beneficiary when you die.

All insurance products carry certain terms and conditions, which may mean:

• Only some conditions, illnesses, or diagnoses are eligible, normally chronic, or life-limiting medical conditions.
• The insurance company might require evidence of your condition to trigger the accelerated death benefit.
• You might only be able to use the accelerated death benefit to pay for qualifying expenses, potentially including a nursing or care home.

This type of additional insurance coverage is sometimes included as standard within permanent life insurance products, although the exclusions and conditions may be more rigorous if the feature is provided at no additional cost. Some policies will also include an accelerated death benefit as terminal illness coverage.

If your life insurance product does not incorporate an accelerated death benefit, you may be able to purchase this as a rider to provide coverage in the event of becoming seriously unwell with a defined illness.

The exact process for activating an accelerated death benefit will depend on the policy terms, but the amount claimable may be capped, usually as a proportion of the total death benefit associated with the insurance product. Values can range from 25% to all of the insurance policy’s death benefit value, although that may mean no further benefit is payable to your named beneficiary when you die.

Once the accelerated death benefit is confirmed as payable, you might be able to use it for anything you wish, including medical bills, nursing care, or residential accommodation. However, some life insurance coverage products will only pay for specific expenses linked to your illness. This will also depend on whether your accelerated death benefit includes coverage only for terminal illnesses or also covers chronic conditions that are not necessarily life-limiting but will require ongoing care or illness management.

Accelerated Death Benefits for Terminal Diagnoses

Typical insurance policy conditions state that if an insured has been diagnosed with a terminal condition, they can claim the full extent of the accelerated death benefit, provided they have documentation from a recognized practitioner or physician. Some insurance products will pay out if the life expectancy is under one year or two years; these payout rates may vary.

Accelerated Death Benefits for Chronic Conditions

A chronic illness may fall within the terms of an accelerated death benefit. However, some life coverage products will only consider conditions eligible if they impact your ability to independently carry out everyday tasks.

An accelerated death benefit, either as an insurance policy inclusion or a rider, can be beneficial if an insured develops a serious, life-limiting, or chronic illness. They may be able to claim against their life coverage before they die and use the insurance payment to help with medical costs or help relieve the financial strain on their loved ones.

The main downside of this life insurance coverage feature is that an accelerated death benefit is only normally activated if you become seriously unwell, and there may be an additional cost if you want to add this coverage to a life insurance product as a rider. As always, it is important to compare the costs, inclusions, and exclusions of any life coverage feature carefully and to review the conditions associated with an accelerated death benefit if this is included as standard in your life insurance product.

How Does an Accelerated Death Benefit Rider Work?

An accelerated death benefit may be payable only in some scenarios, with a maximum value, and to cover eligible expenses that qualify for insurance coverage. For instance, a life insurance product valued at $1 million could provide coverage of up to $100,000 or $200,000 to pay for expenses included within the policy terms. The benefits and how they work will vary between policies and carriers.

How Does an Accelerated Death Benefit Affect the Death Benefits Paid to Life Insurance Beneficiaries?

Some life insurance coverage products use a discounting method, which means that the death benefit paid to named beneficiaries after the insured dies will be reduced by the amount already paid via the accelerated death benefit, possibly including administrative charges or transactional fees.

Is it Worth Adding an Accelerated Death Benefit to My Life Coverage?

The right options for life insurance will always depend on your circumstances and priorities, and most coverage will have exclusions, costs, and limitations to consider. Many people who choose an accelerated death benefit feature do so for the assurance that, if they become seriously unwell, they will have a benefit to help relieve financial stress or help cover medical bills.

For more information about accelerated death benefits, you can speak with insurance advisors to guide you through choosing the policy that best fits your personal needs.