What is 'Accelerated Death Benefit (ADB)'

An accelerated death benefit (ADB) is a benefit that can be attached to a life insurance policy that enables the policyholder to receive cash advances against the death benefit in the case of being diagnosed with a terminal illness. Many individuals who choose an accelerated death benefit have less than one year to live and use the money for treatments and other costs needed to stay alive.

BREAKING DOWN 'Accelerated Death Benefit (ADB)'

Choosing an insurance policy with an accelerated death benefit (ADB) 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 death benefit available even if it's not mentioned in the contract. You qualify for accelerated death 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 death 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 Death Benefits

Accelerated death 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 Death 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. Additional Death Benefit

    The amount that is paid to the beneficiary of a life insurance ...
  2. Acceleration Life Insurance

    A type of policy that pays a portion (typically 25\% or 50\%) ...
  3. Guaranteed Earning Increase Death ...

    A guaranteed earning increase death benefit is a type of option ...
  4. Whole Life Insurance

    Whole life insurance provides coverage for the life of the insured ...
  5. Death Benefit

    A death benefit is the amount on a life insurance policy or pension ...
  6. Death Bond

    A death bond is a security derived by pooling together transferable ...
Related Articles
  1. 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.
  2. Insurance

    How a Death Benefit in a Variable Annuity Works

    A look at how the death benefit in a variable annuity works.
  3. Financial Advisor

    A Closer Look At Accelerated Benefit Riders

    Accelerated benefit riders can allow policy holders to access the death benefit in their life insurance policy while they are still living if they meet certain conditions. Knowing what you get ...
  4. Financial Advisor

    How Linked Benefit Insurance Policies Work

    Linked benefit policies can be a viable alternative to traditional long-term care insurance. Here's how they work.
  5. 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.
  6. Financial Advisor

    7 Issues to Consider When Determining Life Insurance Coverage

    Seven issues to consider when buying life insurance to ensure the coverage is tailored to meet your personal financial situation.
  7. Insurance

    A Look at Single-Premium Life Insurance

    Want to provide for your dependents and finance your own long-term care with one policy? Consider single-premium life insurance.
  8. Financial Advisor

    An Overview of Hybrid Long-Term Care Policies

    As the cost of managed care continues to rise a new breed of hybrid life insurance offers a reasonable level of protection at a far more affordable price.
  9. Personal Finance

    CFPs: The Quarterback of a Financial Team Part 1

    In the event of an illness or injury, a CFP can play quarterback in helping you get benefits owed.
Hot Definitions
  1. Business Cycle

    The business cycle describes the rise and fall in production output of goods and services in an economy. Business cycles ...
  2. Futures Contract

    An agreement to buy or sell the underlying commodity or asset at a specific price at a future date.
  3. 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 ...
  4. Portfolio

    A portfolio is a grouping of financial assets such as stocks, bonds and cash equivalents, also their mutual, exchange-traded ...
  5. Gross Profit

    Gross profit is the profit a company makes after deducting the costs of making and selling its products, or the costs of ...
  6. Diversification

    Diversification is the strategy of investing in a variety of securities in order to lower the risk involved with putting ...
Trading Center