Life insurance is most widely recognized as benefits awarded to your beneficiaries upon death. However, in certain circumstances, these benefits could be paid to you while you are still alive.
Many life insurance companies allow you to receive money from your policy if you become terminally ill. This is known as an accelerated death benefit, which would either pay you a lump sum or monthly payments that will be deducted from the policy’s value. The benefits are granted prematurely to help pay medical costs to terminally ill patients or to provide relief from long-term care expenses.
This concept goes back to the 1980s when costly medical treatment drove terminally ill AIDS patients into insurmountable debt. Over the years policy language has been expanded to include other terminal and chronic illnesses.
Your life expectancy usually has to be 12 months or less from when you apply for the accelerated benefits. Some of the potential triggers for eligibility to receive accelerated benefits are as follows:
· Diagnosis of a terminal disease or condition for which death is likely to occur within a specific time.
· Occurrence of one of several conditions that limit life span (i.e., heart attack, cancer, stroke, coronary artery bypass surgery, kidney failure, organ transplant, AIDS, paraplegia, and loss of limb or eyesight.)
· Need long-term or permanent care due to inability to perform daily activities (eating, toileting, transferring, bathing, dressing, continence.)
In most cases, accelerated death benefits are available at no additional cost, but you may be required to elect this feature as a rider when applying for your policy. Accelerated death benefits generally cap out at 50-75% of your policy’s death benefit, with the remainder being paid to your beneficiary at death.
The laws in your state may determine whether you will receive a lump sum or monthly payments. Otherwise, you can choose which would best benefit you. Currently, accelerated death benefits are not subject to federal income tax; in most states, they are not subject to state income tax.