Glossary
Accelerated death benefit, defined
A provision that lets a terminally or chronically ill insured draw part of the policy's face amount while still alive. What is paid out early, plus any interest or administrative charge, comes off what the beneficiaries receive later.
In practice
Most carriers include a terminal illness version at no extra charge, triggered by a physician's certification that life expectancy is below a stated period, often a year or two. Chronic illness and critical illness versions are usually added as riders for a charge, with triggers such as inability to perform activities of daily living. The payment may be a lump sum or instalments and is typically capped at a portion of the face amount. Money received this way can affect eligibility for means-tested benefits, so anyone receiving Medicaid should ask before taking it. It is worth comparing with selling the policy, which ends the family's claim on the remainder.
A worked example
Suppose a policyholder with a $400,000 term policy is diagnosed with a terminal illness and is certified as having under twelve months to live. She requests an advance of $200,000, which the insurer pays less a small discount for early payment. On her death the beneficiaries receive the remaining $200,000. Hypothetical figures.
Applies to: Life Insurance