When investigating life insurance policies for clients, Windsor Life Settlements, LLC has discovered, on far too many occasions, that policyholders have not been informed of their ability to obtain the accelerated death benefit for their policies. In these instances, Windsor diligently upholds our ethical standards by ensuring that policyholders are not ignorant of this particular benefit, which we believe can be instrumental in reducing the stress that surrounds end of life finances and decision making. The article below is a continuation of that ethical standard.
Chances are good that you took your time when purchasing life insurance and asked a lot of questions about the policy, benefits, and strength and weaknesses before purchasing the policy. While many insurance companies offer full disclosure about the specifics of your policy, there are many more that leave out information about one key element that is either part of the policy itself or available as a rider to the insurance policy. That element is often referred to as the accelerated death benefit.
It’s an important provision to consider when buying life insurance as it can protect your financial interests, and those of your family, before your death. That is if your death is the result of specific terminal illnesses or other specific sets of circumstances outlined in the policy (medically incapacitating conditions the necessity of long-term care, for instance). It works by paying a portion of the death benefits to the policyholder. Upon the death of the policyholder, the death benefit pays out to the beneficiary.
What You Need to Know about Accelerated Death Benefits
It isn’t an included part of every life insurance policy. In fact, these specific benefits must often be purchased as a rider to your existing life insurance policy. Adding the rider may raise your insurance premiums if it isn’t already included in your life insurance coverage.
However, adding it as a rider doesn’t necessarily raise your premiums. Some carriers will add it, upon request, at no additional charge. Other carriers will add the rider at no cost other than a fee if or when a claim is made.
The time to make sure you have this valuable type of insurance protection is while you and all other individuals you seek to cover are healthy. Some policies will not cover people who already have terminal illnesses at the time of purchase. Other policies will specifically exclude people with family histories of certain illnesses or conditions.
If you do have a family history of lingering illnesses or certain terminal cancers, though, it is wise to consider investing in an accelerated death benefit rider. Make sure you take the time to discuss your options with a qualified and trusted insurance agent.
How Does the Accelerated Death Benefit Affect Your Beneficiaries?
Accelerated death benefits range in amount from 25 percent of the face value of the policy to 100 percent of the benefit minus any loans received against the value of your policy. Payments may be received in one single payment or in smaller monthly payments. Some policies specify the way payments are made while others allow the policyholder to make the determination.
The amount received as an accelerated death benefit will be deducted from the face value of the policy and then distributed to your beneficiaries. If you’ve exhausted the full value of your policy, then your beneficiaries will not receive payment after your death.
Considerations to Make Before Using Accelerated Death Benefits
While it’s never a bad idea to have the ability to tap into resources such as accelerated death benefits, there are a few things you should consider before making use of them, including the following.
The Health Insurance Portability and Accountability Act of 1996 provided for the payment of accelerated death benefits to people with a prognosis of 24 or fewer months from a board certified physician to be treated as traditional death benefits, which are tax-free on the federal level. However, some states may tax the income from these benefits and failing to obtain the proper documentation could result in federal taxation too.
Accelerated death benefits are, in no way, meant to replace the need for quality health insurance. They are simply meant to provide peace of mind and mitigate some of the expenses of end of life care and treatment. It is wise to invest in quality health insurance and long-term care insurance and only use accelerated death benefits as a last resort – once these resources are depleted.
The federal government does not require you to collect accelerated death benefits or viatical settlements before receiving Medicaid. However, some states are beginning to pass laws to that effect. If you choose (or are forced) to use accelerated death benefits or sell your insurance policy, the proceeds from the events may affect your eligibility to receive Medicaid.
You purchase life insurance in order to protect your family in the event that you are no longer able to do so yourself. It’s a gift you give to them in order to guarantee that your children will have the ability to attend college, that your spouse will have time to grieve before returning to work, and so that your family won’t have to worry about paying for a home or other necessities in life.
What’s the Difference between Accelerated Death Benefits and a Viatical Settlement?
An accelerated death benefit may be for a portion or the complete amount of the death benefits of the policy. A viatical settlement is a settlement for a percentage of the policy’s face value. Other differences between the two include the fact that the accidental death benefit is paid to you by the insurance company and a viatical settlement is arranged through a third party – the viatical settlement company. With the viatical settlement, the company purchases your policy. They receive ownership of the policy and are responsible for all future payments. Upon your death, they receive the death benefits in full. With the accelerated death benefit, if you did not receive 100 percent of the death benefits of the policy, whatever remains will go to your beneficiaries.
Are There Restrictions on How Accelerated Death Benefit Funds are Used?
In general, there are no restrictions on how these funds can be used. Some people choose to use them to pay medical bills, to fund experimental treatments, or to purchase expensive medications. Others choose to use this money to get their financial affairs in order (pay off mortgages, make financial arrangements for family members, etc.). It is even possible, in most cases, to use these funds to make a few final memories with family vacations. Check with your carrier to learn if there are any specific restrictions on how the funds are used.
What if Your Health Improves after Receiving Accelerated Death Benefits?
Once you’ve filed for, and received an accelerated death benefit payment, you do not have to repay the money if your health improves. That being said, filing a claim under false pretenses or with fraudulent information can result in both criminal and civil penalties.
What are the Qualifications to Receive Accelerated Death Benefits?
Specific requirements vary from company to company and policy to policy. You’ll need to know the specifics of your policy in order to determine if your health condition qualifies for receiving accelerated death benefits. In most cases, a diagnosis with a terminal illness with a life-expectancy of 24 months or less is adequate though some policies may limit acceptance to specific health conditions or illnesses.
Once you determine that accelerated death benefit coverage is the right choice for you, it’s important to work with a name you can trust to get the coverage you need. Ask questions about the specifics and make sure you know what kind of policy you’re getting, whether you need a rider for the accidental death benefits, and specific information on the maximum benefit available to you and how the funds are paid out if or when they are requested (lump sum, monthly, etc.). The more you know now the better prepared you are if you ever need to make use of these benefits.