Accelerated Death Benefit
While life insurance is intended to provide financial protection for family in the event of the insured person’s death, it may also be used to make the end of his or her life more comfortable. The accelerated death benefit, also known as the living benefit option, allows the individual to receive funds or part of the death benefit from a life insurance policy in the event of the following: the diagnosis of an incapacitating condition or illness, the onset of a terminal illness, or the need for long-term care or a nursing home. Accelerated death benefit payments can be made in monthly installments or a lump sum.
Early Payment of Benefits
The accelerated death benefit may be part of the policy contract or may be an optional rider depending on the insurer. An accelerated death benefit generally pays between 70% and 80% of the face value of the policy, either as a lump sum payment or in increments/payments to provide income and cover medical costs. If the accelerated death benefit is claimed, the family will not receive benefits when the insured dies. It is important to balance the immediate need for cash against the family’s future financial needs before claiming this benefit.
Presenting A Life Insurance Claim
The life insurance company will require proof of the insured person’s illness and some carriers may have an additional stipulation that doctor’s reports indicate that the person will die of the illness within the year. Most life policies require that the illness must be terminal. The proceeds from the policy may be used in any way the insured chooses, from paying for hospice or nursing care to taking a final vacation with loved ones. There may be other considerations for claiming this benefit as well, such as covering medical bills, final expenses, mortgage payments, and living expenses.
Medicaid Benefits
Medicaid is a state administered, federal insurance plan which covers medical expenses for Americans with financial needs. It can act as a supplement to Medicare for the elderly or pay medical bills when health insurance benefits and savings are exhausted. Filing a life insurance claim for an accelerated death benefit may make an individual ineligible for Medicaid since it only covers those without other financial resources. If the accelerated death benefit is claimed and paid out, Medicaid may require the family to refund all or part of the benefits to the state.
Federal Income Taxes
As a rule, the proceeds from insurance death benefits are not taxable but since an accelerated death benefit may be considered income, the tax laws are unclear and depend on your particular financial circumstances. For those who might leave their families with a life insurance tax liability, it may be wise to contact the Internal Revenue Service (IRS) regarding their position on taxing accelerated death benefits. High medical bills that are tax deductible may offset the income provided by accelerated death benefits. Although Medicaid counts the benefits as income, the IRS may not.
Advantages For Seniors
Medicare and Medicare supplement insurance usually limit long term care to no more than six months, and few seniors have long term care insurance. The accelerated death benefit rider may be used by family members to provide in-home nursing or hospice care, or to cover some of the costs of a nursing care facility. Since most seniors have no financial dependents and minimal outstanding obligations, the accelerated death benefit can help cover the costs of a final illness with minimal financial impact on surviving family members.
Life Insurance Benefits and Policies
A final illness can drain a family emotionally and financially, but accelerated death benefits may be able to help with some of the expenses before it’s too late. Accelerated death benefit life insurance is available on both whole life insurance and term life insurance, and is offered by more than 200 life insurance companies nationwide.
In addition to an accelerated death benefit, consider purchasing Accidental Death and Dismemberment life insurance (AD&D Insurance) for life-threatening situations regarding accidental death. Enter your zip code to begin a life insurance quote online, and find the best life insurance policy for you and your family’s needs.
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