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What is an accelerated death benefit rider?

A policy add-on that provides early payouts from your death benefit if you’re diagnosed with a terminal illness.

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A life insurance policy can spell security for your family if you die suddenly. Sometimes life complicates matters though — a chronic or severe illness can mean needing money for care and treatments if your medical insurance isn’t enough. But you can still be prepared, and an accelerated death rider may help.

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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 insurer, 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.

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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 when you add this rider. Other companies offer it without raising your rate, but charge a fee once you need to use your accelerated death benefit.

If you add an accelerated death benefit rider to your plan, contact your insurer 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.

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.

How much does an accelerated death benefit rider pay?

The amount you receive depends on your provider and your need. Some insurance companies let you take up to 95% of your death benefit.

Your life insurance company may also put a cap on how much it pays out. For example, it may limit the accelerated death benefit to 50% of the policy amount or $500,000, whichever is less. That means if you have a $2 million policy, the amount that can be paid out for an accelerated death benefit is still limited to $500,000.

When can I use an accelerated death benefit rider?

A handful of scenarios can activate an accelerated death benefit rider — but it comes down to your policy and insurer. Generally you must be in one of the following situations:

  • 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.
  • Be permanently placed in a nursing home.

Should I get an accelerated death benefit rider?

While there’s a lot to consider — even just coverage amounts can be a trick to figure out — some insurers will include an accelerated death benefit in its base policies. That means you won’t pay extra for it every month, but you may have to pay a fee to use it.

You should also consider the following 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 insurance company 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 have to pay a fee to receive the accelerated benefit.

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Types of accelerated death benefit riders

Accelerated death benefit riders usually fall under one of four categories, depending on the insurer.

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:

  • AIDS
  • ALS
  • Arterial aneurysms
  • Blindness
  • Central nervous system diseases, such as Parkinson’s, Huntington’s, multiple sclerosis and encephalitis
  • Central nervous system tumors
  • Heart attack
  • Invasive cancer
  • Loss of limb
  • Major multi-organ trauma
  • Major organ transplant
  • Paralysis
  • Severe disease of any organ that shortens life expectancy
  • Severe burns
  • Stroke

Chronic illness rider

These riders provide periodic payments if you become disabled or ill and are likely to remain so for the rest of your life. 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 if you become disabled or ill, but are given a year or less to live.

Long-term care riders

This type of ride costs more, but gives additional coverage for long-term care if you move into a nursing home or require private in-home care.

Bottom line

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 compare life insurance options to find the best fit to cover your loved ones.

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