A policy add-on that provides early payouts from your death benefit if you’re diagnosed with a terminal illness.
Life doesn’t always prepare you for the unexpected, but investing in life insurance can offer your family financial security if you die suddenly. But what if your become ill and need money for care of treatment? Prepare for the worst with an accelerated death rider.
Riders are life insurance add ons that curate your ideal policy and give you the opportunity to add on more protection — usually for a fee. The accelerated death benefit rider is one of the most popular riders, giving you access to money in your policy if you’re diagnosed with a terminal illness like cancer or heart disease.
Accelerated death benefit rider explained
An accelerated death benefit rider, also called a living benefits rider, provides early cash payouts if you become terminally ill. It can pay for things like long-term care, treatment or daily living expenses while you’re out of work. How and when you can use the accelerated death benefit rider depends on your provider, but it’s usually applied when you have less than two years to live.
Whatever cash is paid out is deducted from your total payout — so your beneficiaries will see less once you die.
If you’re someone who receives government assistance like Medicare or Social Security, your eligibility could be affected by an accelerated death benefit payout. Be sure to check with a government agency to see if your income is affected.
How does an accelerated death benefit rider work?
Unlike whole or universal life insurance, an accidental death benefit rider is not an actual policy. It’s an extra that’s added to your existing life insurance plan. Some insurance companies offer this rider that raises your premiums. Other companies offer it without raising your rate, but charge a fee once you need to use your accelerated death benefit.
If you’ve added the accelerated death benefit rider to your plan, contact your provider once you’re diagnosed with a terminal illness. As long as you keep paying your premium, you’ll either be paid a lump sum or monthly installments. How much you receive depends on your provider and your need. Some providers let you take up to 95% of your death benefit.
Once you receive your accelerated death benefit payout, your premium changes based on your new, lower face value. Let’s say you held a $1 million policy and paid $38 a month. You were diagnosed with cancer and was granted 50% of your face value — $500,000. Your remaining death benefit is $500,000, and would now pay $20 a month to keep your policy.
When can I use an accelerated death benefit rider?
There are a handful of scenarios when an accelerated death benefit rider can be activated, but in the end it comes down to your policy and provider, by generally you must:
- Be diagnosed with a terminal illness with less than two years to live.
- Be diagnosed with an acute illness that shortens your life, like heart disease or AIDS.
- Be unable to take care of your daily needs and need long-term care.
- Permanently live in a nursing home.
Should I get an accelerated death benefit rider?
Finding the right life insurance policy can be overwhelming, even before you consider coverage amounts, policy features and riders. While there’s lots to consider, some providers offer free riders, like the accelerated death — you won’t pay unless you have to use the rider. Here are some other things to consider when buying an accelerated death benefit rider:
- Price. Even though adding this rider is fairly inexpensive, it may raise the cost of your premium.
- Reduction of death benefit. The payout of an accelerated death benefit is deducted from the death benefit amount, so your beneficiaries receive less once you die.
- Eligible circumstances. Each provider has its own set of circumstances to determine when you can use this rider.
- Social programs. An early payout could affect your eligibility for social programs like Medicaid or Social Security.
- Fees. Even if this rider didn’t raise your premium, you may pay fees once you request a the accelerated benefit.
Types of accelerated death benefit riders
Accelerated death benefit riders usually fall under one of these categories, depending on the provider.
Critical illness rider
This rider pays out a large, lump sum portion of the death benefit, usually between 50% and 80%, if you’ve been diagnosed with a major condition or injury. Here are a few of the many conditions that is covered by this rider:
- Heart attack
- Invasive cancer
- Major organ transplant
- Arterial aneurysms
- Central nervous system tumors
- Major multi-organ trauma
- Severe disease of any organ that shortens life expectancy
- Central nervous system diseases, such as Parkinson’s, Huntington’s, multiple sclerosis (MS) and encephalitis
- Severe burns
- Loss of limb
Chronic illness rider
These riders provide periodic payments if you become disabled or ill, but expect to make a recovery. You’ll be considered for a pay out if you’re unable to perform tasks of daily living like eating, dressing and moving from bed to wheelchair.
Terminal illness rider
Similar to chronic illness rider, terminal illness rider will offer a payout when you become disabled or ill, though are given a year or less to live.
Long-term care riders
This type of ride costs more, but gives more coverage for long term care if you move into a nursing home or have in-home care.
Stand-alone life insurance offers protection for your family when you die, but lacks coverage while you’re still alive. If you become ill and need extra money for treatment and care, an accelerated death benefit rider can help cover expenses, while still offering a payout once you die. Before deciding if adding this rider is best for you, weigh the pros and cons and consult your provider to see your options.