Key Takeaways
- An accelerated death benefit (ADB) allows policyholders to access a portion of their life insurance payout while still alive if diagnosed with a terminal illness.
- ADB payments can be critical in covering end-of-life care, medical expenses, or maintaining financial stability during serious health decline.
- Claiming an accelerated death benefit may reduce the final death benefit your beneficiaries receive, so it’s important to evaluate all options carefully.
- Dabdoub Law Firm helps clients nationwide understand their rights under life and disability insurance policies and fight back when insurance companies deny rightful benefits.
What Is an Accelerated Death Benefit?
An accelerated death benefit (ADB) is a benefit included in many life insurance policies that allows the policyholder to access a portion of the death benefit while they are still alive. Typically, ADBs are available when the policyholder is diagnosed with a terminal illness and has a life expectancy of 12–24 months, depending on the insurer's terms.
The purpose of an accelerated death benefit is to provide financial relief when it’s needed most—while the insured is still living and facing significant medical or care-related expenses.
How Does an Accelerated Death Benefit Work?
Triggering Events
Most accelerated death benefits clauses are triggered when:
- The insured is diagnosed with a terminal illness with limited life expectancy.
- The insured suffers from a qualifying chronic illness, sometimes requiring continuous care.
- In some policies, the insured experiences a critical illness like cancer, stroke, or heart attack and meet the specific qualifications outlined in the policy.
Payout Amount
The amount an individual can receive through an accelerated death benefit depends on the policy. It can range from 25% to 95% of the total death benefit. For example, if a life insurance policy has a $500,000 death benefit, an accelerated death benefit might provide up to $400,000 in advance, reducing what is eventually paid to beneficiaries.
Impact on Death Benefit
When a policyholder uses an accelerated death benefit:
- The advanced amount is subtracted from the death benefit.
- Interest or administrative fees may also be deducted.
- The remaining balance is paid to beneficiaries upon the policyholder's death.
Benefits of an Accelerated Death Benefit
Financial Support During Serious Illness
ADB payments can provide much-needed funds to cover:
- Hospice or palliative care
- Experimental treatments not covered by insurance
- Mortgage or rent payments
- Everyday living expenses for the insured and their family
Maintaining Dignity and Choice
An ADB gives individuals more control over how they spend their remaining time, including the ability to:
- Stay in their own home rather than a facility
- Reduce financial stress on loved ones
- Afford meaningful experiences or time with family
Drawbacks and Considerations
While an accelerated death benefit can be a lifeline, it also comes with serious trade-offs that policyholders should weigh carefully.
Reduced Payout to Beneficiaries
The most obvious downside is that it reduces the death benefit available to your loved ones. This can impact estate planning and the financial stability of those left behind.
Potential Tax Implications
ADB proceeds are usually not taxable if the insured meets federal guidelines for terminal or chronic illness. However, tax rules can be complex, especially if the policy is owned by a business or trust.
Impact on Medicaid Eligibility
Receiving an ADB may count as income or assets for the purposes of Medicaid eligibility, which can complicate long-term care planning.
When Insurance Companies Deny ADB Claims
Even though ADBs are contractual benefits, insurers sometimes wrongfully deny claims, especially if they argue that the medical condition does not meet their criteria or if documentation is deemed “insufficient.”
Common Reasons for Denial
- Disputes over life expectancy timelines
- Claims that the illness doesn’t qualify under the policy
- Missing or unclear physician statements
- Allegations of material misrepresentation in the original application
This is where having a dedicated legal team makes all the difference.
Life Insurance Companies Have Attorneys, Shouldn’t you?
Because we specialize in life insurance claims, our clients get the benefit of:
- Having an attorney who is an expert in ERISA and individual insurance claims, appeals and litigation.
- Being backed by a law firm with a proven track record of winning tough life insurance lawsuits.
Choose Dabdoub Law Firm to get experienced lawyers on your side.
We can help with:
- Submitting life insurance claims.
- Appealing life insurance claim denials and lower court decisions.
- Negotiating settlements and life insurance payouts.
- Filing a lawsuit against your employer and/or life insurance company.