What is 'Accelerated Benefits'

Accelerated benefits refers to a clause in certain life insurance policies that enable the policyholder to receive the benefits before death. Accelerated benefits are normally reserved for those that suffer from a terminal illness, have a long term high-cost illness, require permanent nursing home confinement or have a medically incapacitating condition. Some insurance companies differ on how much cash can be pulled out and how close to death the insured has to be in order to receive these benefits. Insurers offer anywhere from 25 to 100 percent of the death benefit as an early payment. Accelerated benefits are also referred to as living benefits.

BREAKING DOWN 'Accelerated Benefits'

Choosing an insurance policy with an accelerated benefits allows the policyholder to pay for their daily living in an effort to make it as comfortable as possible while also allowing the holder to look after his or her family once they pass away. This type of benefit was originally started in the late 1980s in an attempt to alleviate the financial pressures of those that were diagnosed with AIDS.

Some policies might make an accelerated benefit available even if it's not mentioned in the contract. You qualify for accelerated benefits if you contract a terminal illness and are expected to die within two years. You also qualify if you've been diagnosed with an illness that will reduce your expected lifespan, if you need organ transplant because of illness or if you are in hospice long-term care. Accelerated benefits are also a possibility if you need assistance with everyday activities like bathing or using the toilet.

The cost of a living benefit can vary according to insurance company and policy. If the coverage is already included, the cost will be included in the policy. If not, then you will have to pay a fee or a percentage of the death benefit.

Taxation on Accelerated Benefits

Accelerated benefits are usually tax exempt for individuals expected to die within two years. This type of benefit isn’t meant to substitute for long-term care insurance coverage. It should be used to supplement for expenses not covered by a long-term care policy. Receiving an accelerated death benefit can affect your eligibility for Medicaid and SSI.

How Accelerated Benefits Work

Consider a 40-year-old named Fred, a preferred non-tobacco user with a $1 million life insurance policy. Fred contracted terminal brain cancer and decided he wanted to accelerate half the face value of his policy and collect an accelerated death benefit. After reviewing the claim, the insurance company made a lump-sum offer of $265,000. Fred accepted the offer and received a $265,000 payment. His death benefit was decreased by the amount he accelerated ($500,000). After cashing the check, Fred's remaining death benefit was $500,000, and he paid new premiums based on a $500,000 face value instead of the original $1 million face value.

RELATED TERMS
  1. Life Insurance

    A protection against the loss of income that would result if ...
  2. Decreasing Term Insurance

    Decreasing term insurance is a renewable term life insurance ...
  3. Guaranteed Issue Life Insurance ...

    A type of financial-protection policy that provides cash to a ...
  4. Death Benefit

    A death benefit is the amount on a life insurance policy or pension ...
  5. Whole Life Insurance Policy

    A life insurance contract with level premiums that has both an ...
  6. Permanent Life Insurance

    An umbrella term for life insurance plans that do not expire ...
Related Articles
  1. Managing Wealth

    Life Insurance With an Increasing Death Benefit

    Why buy a life insurance policy with an increasing rather than level death benefit
  2. Insurance

    How Good of an Investment Is Life Insurance?

    Compared to other options, does it ever make sense to include cash-value life insurance in your investment portfolio? A look at the pros and cons.
  3. Financial Advisor

    Advising FAs: Explaining Life Insurance to a Client

    Life insurance was initially designed to protect the income of families, particularly young families in the wealth accumulation phase, in the event of the head of household's death.
  4. Insurance

    Should You Buy Term or Permanent Life Insurance?

    When choosing between term or permanent life insurance you'll need to consider these factors.
  5. Financial Advisor

    Permanent Life Policies: Whole vs. Universal

    If you're looking for life-long security, choosing between these two is the key.
  6. Insurance

    Tips for Helping Clients with Life Insurance Needs

    Life insurance needs will likely change over the client’s lifetime and again financial advisers can provide an objective sounding board.
  7. Insurance

    Life Insurance: How Long Does It Take To Get Paid?

    How to file for a life insurance payout – and how long it takes to receive it. Plus, new ways to plan for payments that provide an income stream.
  8. Retirement

    Understanding Different Types of Life Insurance

    Understand the various types of life insurance, how each can be used in personal or business financial planning, and for whom they are best-suited.
  9. Insurance

    5 Things You Didn't Know About Life Insurance

    Life insurance policies can be simple or complex; make sure you know as much as you can before setting up yours.
Hot Definitions
  1. Yield Curve

    A yield curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but ...
  2. Gross Profit

    Gross profit is the profit a company makes after deducting the costs of making and selling its products, or the costs of ...
  3. Risk Tolerance

    The degree of variability in investment returns that an individual is willing to withstand. Risk tolerance is an important ...
  4. Donchian Channels

    A moving average indicator developed by Richard Donchian. It plots the highest high and lowest low over the last period time ...
  5. Consumer Price Index - CPI

    A measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, ...
  6. Moving Average - MA

    A moving average (MA) is a widely used indicator in technical analysis that helps smooth out price action by filtering out ...
Trading Center