Life insurance ordinarily pays benefits to a beneficiary after the insured person dies. You buy life insurance to protect those who depend on you for financial security if you die prematurely. Life insurance provides your dependents with the ongoing income they will need to live on, as planned, when your income no longer exists. But your life insurance may also provide you, the policy holder, with certain living benefits that you could use in the event you become seriously or terminally ill. Accelerated or living benefits may be included in a policy when purchased, or attached as a rider.
Accelerated Death Benefits allow you to receive a portion of your life insurance benefit early, to use while you are still living. This benefit can be used to offset costs associated with a chronic or terminal medical condition. According to the American Council of Life Insurers, accelerated benefits can range from 25% to 95% of your policy’s death benefit. The following medical circumstances usually trigger eligibility of early payment:
There are generally no restrictions as to how your accelerated death benefits can be used. They can be used to help pay hospital bills, for medications, or other treatments, etc. But it is important to keep in mind that the benefits from an ADB rider are limited and meant to alleviate end of life financial hardships. They do not take the place of comprehensive health insurance or long term care insurance.
Benefits are paid out according to the policy or riders. Sometimes payments are made monthly, others are paid in a lump sum. Some policies allow you to choose the method of payment. In most cases, accelerated benefits are not subject to federal income taxes. It is also very important to remember that the amount paid to your beneficiary is reduced by the amount you received as an accelerated benefit and also by any outstanding loans against your life insurance, and that there may be service charges.
It is important that you understand your life insurance policies. Talk to an independent agent at Foundation Insurance Group to make sure you have the right coverages to ensure that both you and your dependents are taken care of both while you’re living and into the future.