At some point in your life, it becomes a good idea to take out a life insurance policy.
Everybody should have a life insurance policy to ensure that their loved ones will be supported after they pass away.
It is the only way to ensure that your family will be okay once you are gone.
But life insurance policies aren’t only useful when you pass away.
Life insurance policies can also be used to support your family if you become terminally ill, as long as you buy a policy with an accelerated death benefit policy.
In this guide, we’ll be taking a look at exactly what accelerated death benefits are, whether, or not, they are taxable, and lots more.
So, if you want to find out more about these, then keep on reading!
- 1 What Are Accelerated Death Benefits?
- 2 Are Accelerated Death Benefits Taxable?
- 3 What Is The Purpose Of The Accelerated Death Benefit Rider?
- 4 Frequently Asked Questions
- 5 Summary
What Are Accelerated Death Benefits?
First things first, let’s take a look at what accelerated death benefits are. As we have mentioned, accelerated death benefits are something that may be included in your life insurance policy.
They are included in a number of life insurance policies, and they are something that a lot of people actively seek when taking out life insurance. But what are they?
Well, accelerated death benefits is a provision included in most life insurance policies. This provision allows the policyholder to access a portion of their policy while they are still alive.
Of course, accelerated death benefits aren’t available to just anybody.
You will only be able to access your accelerated death benefits if you have been diagnosed with a terminal illness with a short prognosis, usually of no more than 2 years.
In order to access your accelerated death benefits, you will need to provide proof of your terminal illness and your life expectancy.
This proof will usually come from your doctor and treatment team.
Some life insurance policies will also pay out accelerated death benefits if you are in hospice care, require an organ transplant, or have a condition that will shorten your expected lifespan.
But, it does depend on the policy.
Are Accelerated Death Benefits Taxable?
Now that we know what accelerated death benefits are, let’s take a look at if they are taxable.
A lot of the time, the figure that you will receive as your accelerated death benefit is pretty high, so it is understandable that you might expect this money to be taxed.
But, most of the time, it isn’t.
While accelerated death benefits usually are given to you as a large lump sum, there is usually no requirement to pay tax on the money.
This is because accelerated death benefits are not considered to be an income. You pay tax on money that you make, such as your salary.
But, accelerated death benefits are not money that you make, and so there is no requirement to pay tax upon it.
So, most of the time, you will not pay tax on any accelerated death benefits that you receive.
What Is The Purpose Of The Accelerated Death Benefit Rider?
An accelerated death benefit rider is a provision that is offered with most life insurance policies.
For just a small amount of money extra a month, you can add an accelerated death benefit rider onto your policy.
This is something that most people choose to do, simply for the added security that this rider offers.
An accelerated death benefit rider offers you a lot of security and this is the main purpose of it.
With an accelerated death benefit rider, you will receive a lump sum if you are diagnosed with a terminal illness and meet the criteria to receive this portion of your life insurance early.
Once received, you can spend the lump sum how you wish. However, most people will use this to pay for treatments, and ensure that they are comfortable in their final days.
The idea of the accelerated death benefit rider is that you can afford to pay for treatment and other things that you require in your final days, without putting your family in debt.
The accelerated death benefit will support you while you are alive, and then the remainder of your life insurance policy will support your family once you are gone.
Frequently Asked Questions
What Is Another Name For Accelerated Death Benefit?
Most of the time, the accelerated death benefit will be called an accelerated death benefit.
However, in some areas of the USA, this rider is also referred to as a “living benefit” or a “terminal illness benefit”.
These terms make sense as the accelerated death benefit is a portion of your life insurance policy that you receive while you are still living, and suffering from a terminal illness.
How Long Does It Take For Accelerated Death Benefits To Be Paid?
When your family claims on your life insurance policy after you have passed away, it will usually take around 1 month for them to receive the money.
This is fairly standard due to the paperwork and checks that have to be completed before the insurance company will pay out.
However, when you claim for your accelerated death benefits, the wait time is usually a little longer due to checks that must be completed.
Generally, you will receive your money within 4 to 6 weeks if you fit the criteria.
How Are Death Benefits Paid Out?
If you claim on your accelerated death benefits rider, then the money will be sent directly to you.
However, once you have passed away, your family will have the claim on the policy instead.
After you have died, the money from your life insurance policy will be directed to your beneficiaries.
So, once the paperwork has cleared, the money will be sent to them.
In short, no, accelerated death benefits are not taxable.
While you will receive a lump sum, this isn’t technically an income, and so you will not be required to pay any tax upon it.
We hope this information has helped. Thank you for reading!