Q: What are accelerated benefits?
A: A life insurance policy ordinarily pays benefits to a beneficiary after a policy owner dies. Those benefits are accelerated if they are paid directly to a chronically or terminally ill policy owner before he or she dies.
Provisions for accelerated or "living benefits" may be included in a policy when purchased or attached as a rider.
Q: When can I request early payments?
A: Certain medical circumstances can trigger eligibility for early payment of all or a portion of your policy's proceeds, including:
- Terminal illness, with death expected within 24 months.
- Acute illness, such as acute heart disease or AIDS, which would result in a drastically reduced life span without extensive treatment.
- Catastrophic illness requiring extraordinary treatment, such as an organ transplant.
- Long-term care needed because you cannot perform a number of daily living activities, such as bathing, dressing, or eating.
- Permanent confinement in a nursing home.
Q: Can my beneficiaries collect any death benefit if I receive an accelerated benefit payment?
A: The amount paid to your beneficiary is reduced by the amount you received as an accelerated benefit. If your policy's proceeds are entirely depleted, no benefit is paid after your death.
Q: How do I pay for the accelerated benefits option?
A: The cost may be included in your insurance premium or added to the policy for a small amount, usually a percentage of the base premium. Some companies only charge you for the option if you use it.
Q: What types of policies offer them?
A: A permanent individual life insurance policy of $25,000 or more usually provides for accelerating benefits, as do some term life policies. Check with your insurance agent or company to see if your policy includes or offers the option. Group policies for term or permanent life insurance may also provide accelerated benefits; check with your benefits administrator.
Q: Will my insurer cancel my life insurance policy if it's known that I'm ill or disabled?
A: No, your policy cannot be canceled as long as you pay the premiums. You may even be able to add an accelerated benefits rider after you become ill or disabled.
Q: Do accelerated benefits replace long-term care insurance?
A: No. A long-term care policy keeps you from having to deplete your life insurance benefits or other savings to pay for long-term care services.
Q: How much of my life insurance policy can I collect early?
A: In general, accelerated benefits can range from 25 to 95 percent of the death benefit. The payment depends on your policy's face value, the terms of your contract, and the state you live in. Some companies will permit you to accelerate 100 percent of your policy's face value, but will reduce the amount of your benefit to compensate for the interest it loses on early payout. The amount of your benefit will also be reduced by any outstanding loans against your policy. Additionally, there may be a small service charge. Ask your insurer to provide you with a quote before you exercise your accelerated death benefit claim. In addition to adjustments made by an insurer, some states may limit the percentage and amount that can be accelerated. Check with your state insurance department to determine limitations.
Q: How are accelerated benefits paid out?
A: Each policy or rider specifies the method. Sometimes payments are made monthly; others are paid in a lump sum. Some policies allow you to choose the method of payment.
Q: Will I have to pay taxes on accelerated payments?
A: In most cases accelerated benefits are not subject to federal income taxes. Under the federal tax code, a terminally ill person (defined as a person having only 24 months to live) would not have to pay taxes on accelerated benefits. A chronically ill person is usually exempt but may have to qualify for the exemption by being certified each year. To ensure compliance with current tax laws, check with a local tax advisor.
Q: What should I consider before taking an accelerated benefit?
How will accelerating payments affect your survivors? Life insurance is usually purchased to protect a spouse, children, or other dependents from the financial burden of a premature death. If you use all or part of your policy benefits, there may be little left for your family.
Are there better ways to cover high costs of illness and health care? Accelerated benefits are limited and are meant to alleviate end-of-life financial hardship. They do not replace comprehensive health or long-term care insurance, which are designed to cover medical and long-term care costs.
Will collecting accelerated benefits affect your eligibility for Medicaid? Under U.S. Department of Health and Human Services policy, you cannot be forced to collect accelerated benefits from your life insurance policy before qualifying for Medicaid. But if you choose to receive accelerated benefits, that money could be considered income, which might affect your Medicaid eligibility.
Q: If I receive accelerated benefits and do not die, do I have to pay the money back?
A: Once your insurer accepts and pays your accelerated death benefits claim, you don't have to return the money if your health improves. However, filing a false claim or concealing information to obtain a benefit under an insurance policy is considered fraud in many states and subject to criminal or civil penalties.
Q: How do I find out if my life insurance policy offers accelerated benefits?
A: Check with your agent or company to see if your policy has an accelerated benefit option or if you can add it as a rider. If you receive group life insurance through your employer or union, check with your human resources department or union representative.
Q: Are accelerated benefits available to federal employees and members of the armed services?
A: Yes, if you are enrolled in:
Federal Employees' Group Life Insurance Program (FEGLI). View the living benefits
section of the FEGLI Handbook
Servicemembers' Group Life Insurance Program, or the Veterans' Group Life Insurance Program. Access information about these programs in the accelerated benefits chapter
of the Servicemembers' and Veterans' Group Life Insurance Handbook
Q: How do accelerated benefits compare to viatical settlements?
A: With an accelerated benefit, you receive a payment from your life insurance company and, if accelerating only part of your death benefit, some percentage may be left for your beneficiary. With a viatical settlement, a viatical settlement company buys your life insurance policy, gives you a percentage of the death benefit upfront, and then pays all the remaining premiums to become the sole beneficiary of your policy -- receiving the full benefit when you die.
Most state insurance departments regulate viatical settlement companies -- contact the insurance department in your state for further information. Your agent can tell you if an accelerated benefit or policy loan is available as an alternative to a viatical settlement and which is better suited to your needs. Like accelerated death benefits, viatical settlements for the terminally or chronically ill are generally tax-free.
Q: What if I bought a life insurance policy to cover someone else? Who would be eligible for accelerated benefits?
A: When the policy owner is not the insured, it is the insured who must be terminally or chronically ill; the policy owner can claim and receive benefits on the insured's behalf.