Accelerated Death Benefit
An Accelerated Death Benefit (ADB) is a life insurance policy feature that allows the insured to receive a portion of the death benefit while still alive upon diagnosis of a terminal illness, chronic illness, or other qualifying condition specified in the policy.
Life insurance is traditionally a benefit paid at death. The Accelerated Death Benefit provision — often included at no additional premium on modern policies, or available as an optional rider — allows the policy to serve a living benefit function when the insured faces a serious health event.
The most common trigger for an ADB is a terminal illness diagnosis: a physician certifying that the insured has a life expectancy of 12 to 24 months. Upon qualification, the insured can receive a lump sum or periodic payments representing a discounted portion of the face value — commonly 50 to 90 percent. The remaining benefit is paid to beneficiaries at death.
Many policies now also include critical illness and chronic illness accelerated benefits as separate riders. A critical illness benefit pays upon diagnosis of covered conditions such as heart attack, stroke, cancer, or organ failure. A chronic illness benefit activates when the insured cannot perform a specified number of activities of daily living (typically two of six: bathing, dressing, eating, continence, transferring, and toileting) or requires substantial supervision due to severe cognitive impairment. These living benefit triggers differ from the terminal illness standard and have different qualification requirements.
The tax treatment of ADB payments depends on the trigger. Payments made under the terminal illness provision are generally income-tax-free under IRC Section 101(g). Payments triggered by chronic illness conditions may also qualify for favorable tax treatment if the policy meets the requirements for a qualified long-term care insurance contract.
Using the ADB reduces the death benefit available to beneficiaries. The amount advanced plus an actuarial discount factor is subtracted from the face amount, so heirs will receive less than the original death benefit. This trade-off should be understood before electing an accelerated payment.