What is an accelerated death benefit, and how does it work?

An accelerated death benefit (often called a “living benefit”) is an option in many life insurance policies that lets you receive money from your death benefit while you are still alive, if you meet the rider’s qualifying criteria (commonly a terminal illness, sometimes other defined conditions depending on the policy).

When you accelerate benefits, the policy’s death benefit is reduced. The reduction is commonly handled as either a present value payment (discounted amount), or a lien against the death benefit (sometimes with interest), depending on the rider.

You are not selling the policy. You are drawing from it early, directly from the insurer.

What is a viatical settlement, and how does it work?

A viatical settlement is a transaction where you sell your life insurance policy to a third party because the insured is terminally ill or chronically ill, depending on the state and the buyer’s criteria.

In a viatical settlement:

• You receive a lump sum cash payment from the buyer.
• Ownership and beneficiary rights transfer to the buyer.
• The buyer typically takes over premium payments.
• The buyer collects the death benefit later.

What does an accelerated death benefit look like in real life?

Example:

You have a $500,000 life insurance policy with an accelerated death benefit rider. You receive a qualifying terminal diagnosis per the rider. You apply through the carrier, the carrier approves, and you accelerate $200,000.

Result:

You receive $200,000 from the carrier. Your beneficiaries later receive a reduced death benefit (the reduction depends on the rider mechanics and fees). You did not sell the policy to anyone.

What does a viatical settlement look like in real life?

Example:

You have a $500,000 policy and a physician-certified terminal condition that meets viatical requirements. A viatical provider offers $300,000. You accept.

Result:

You receive $300,000 from the buyer. The buyer becomes owner and beneficiary. The buyer pays future premiums and receives the death benefit later.

Which option usually pays more, and why?

It depends, but here is the honest framework: ADB amounts are constrained by the rider rules and the carrier’s calculation (present value or lien approach). That can mean less than what a strong viatical offer might pay. Viatical offers can be higher because buyers are pricing the policy as an investment and may be willing to pay more for certain medical profiles, premium structures, and death benefit sizes.

But “higher” is not the same as “better.” The best move is the one that keeps your options open and does not accidentally leave money on the table.

A Very Important Case Study & Cautionary Tale

Ted Muller’s story is an example of someone who qualified for both a viatical settlement and an accelerated death benefit.  It’s also a cautionary tale because several life settlement companies he engaged with did not make him aware of his accelerated death benefit option.  In the end, he chose to pursue a viatical settlement and documented his experience for anyone that might be faced with a similar predicament. The point is not the novelty. The point is urgency: when time is short and the cost of living, care, or bucket list goals is immediate, converting a policy into cash can give someone agency when life is trying to take it away.

It is the emotional core of why this market exists at all.  Not to be clever, but to be useful.

If accelerated death benefits exist, why do many policyholders never hear about the rider?

Two realities run side by side:

1. Consumer protection rules often expect alternatives to be disclosed. Many states require disclosures that alternatives may exist, including accelerated death benefits, when someone applies for a viatical settlement. So the concept is not hidden in principle.
2. Marketing incentives are not aligned. If a company is paid only when a policy sells, leading with “call your carrier and use your ADB rider instead” can eliminate the transaction. So some firms, especially direct-to-consumer buyers, may not emphasize the rider early, because it slows down or stops the deal.

This is why the smartest posture is proactive. Ask about the rider before anyone else gets to frame the choice for you.

What should you do first if you are comparing these options?

Use this quick sequence:

1. Ask your carrier, in writing, whether you have an accelerated death benefit rider and what qualifies.
2. Request the rider language and the carrier’s acceleration calculation method.
3. Then compare that ADB number against viatical offers, apples to apples, factoring in premiums you would otherwise pay and what happens to the remaining death benefit.

Also worth stating plainly: even though commercials can make it sound universal, most policyholders will not qualify for a life settlement. Starting with the policy’s built-in options is often the cleanest first step.

Sources

Windsor Life Settlements, “NYC Resident Secures Dream Car With A Viatical…” (Ted Muller case study).
Windsor Life Settlements®

NAIC Consumer, “Life Insurance” (defines accelerated death benefit as a living benefit and notes it draws from the death benefit).
NAIC

Insurance Compact, Accelerated Death Benefit checklist (definition, present value payment or lien concept).
Home | Insurance Compact

NAIC, Accelerated Benefits Model Regulation (disclosure standards for accelerated benefits).
NAIC

NAIC, Viatical Settlements Model Act (viatical contract definition and distinction from policy loan or accelerated death benefit under policy terms).
NAIC

Illinois Department of Insurance, “Viatical Settlements, Accelerated Death Benefits” (consumer overview and considerations).
IDOI

Ohio Revised Code 3916.06 (example of statutory disclosure that alternatives include accelerated death benefits).
codes.ohio.gov