HomeAnswersWhat is an accelerated death benefit?
What is an accelerated death benefit?
An accelerated death benefit is a life insurance policy provision that lets the policyholder receive part of the death benefit while the insured person is still alive, typically after a serious diagnosis such as a terminal illness. The Texas Department of Insurance describes it as a way to get your death benefit while you're alive if you're diagnosed with a serious illness or need help with activities of daily living.
What qualifies depends on the policy. The NAIC model regulation on accelerated benefits lists qualifying events such as a medical condition expected to limit life span to, for example, 24 months or less, or a condition requiring extraordinary medical intervention such as a major organ transplant or continuous artificial life support. Texas rules define terminal illness as a condition that can reasonably be expected to result in death in two years or less.
The money is not extra. The Texas Department of Insurance says the company subtracts the accelerated amount from the death benefit owed to beneficiaries, and the Florida Department of Financial Services says the beneficiary receives the remainder at death and that the insurer may charge a fee for handling the claim.
For federal taxes, the IRS says accelerated death benefits are fully excludable from income if the insured is terminally ill, meaning a physician has certified the person is reasonably expected to die within 24 months, and chronic illness payments follow separate rules and limits. The NAIC model regulation also requires a disclosure that these payments may affect eligibility for Medicaid or other government benefits. This is general information, not tax or legal advice.
The sources behind this answer
- The Texas Department of Insurance says an accelerated death benefit provision lets you get your death benefit while alive if diagnosed with a serious illness or needing help with activities of daily living. Texas Department of Insurance
- The Texas Department of Insurance says the company subtracts the accelerated amount from the death benefit owed to beneficiaries. Texas Department of Insurance
- Florida's consumer guide says that if the insured is diagnosed with a terminal illness, an accelerated death benefit claim can be filed and the insurer pays a portion of the death benefit. Florida Department of Financial Services
- Florida's consumer guide says the beneficiary receives the remainder of the death benefit, and the insurer may charge a fee for administering the claim. Florida Department of Financial Services
- Texas insurance rules define terminal illness as a condition, including an injury, reasonably expected to result in death in two years or less. Texas Department of Insurance rules
- The NAIC model regulation lists as a qualifying event a medical condition that would drastically limit life span, for example to 24 months or less. NAIC Accelerated Benefits Model Regulation
- The NAIC model regulation also lists a condition requiring extraordinary medical intervention, such as a major organ transplant or continuous artificial life support, as a qualifying event. NAIC Accelerated Benefits Model Regulation
- The NAIC model regulation requires a disclosure that accelerated benefit payments may affect eligibility for Medicaid or other government benefits. NAIC Accelerated Benefits Model Regulation
- The IRS says accelerated death benefits are fully excludable from income if the insured is terminally ill, meaning certified by a physician as reasonably expected to die within 24 months. IRS Publication 525
- Federal tax law treats amounts received under a life insurance contract on a terminally ill insured as paid by reason of death. 26 U.S.C. 101(g)
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