Accelerated Death Benefit (ADB) Rider

ByNathan Paulus
Edited byJonathan Ramos

Updated: November 27, 2023

ByNathan Paulus
Edited byJonathan Ramos

Updated: November 27, 2023

Advertising & Editorial Disclosure

An accelerated death benefit (ADB) rider is a provision in a life insurance policy that permits a policyholder to receive a portion of the death benefit while still alive, under specific conditions such as a terminal or chronic illness diagnosis.

This rider can provide financial relief by advancing a percentage of the death benefit to address immediate needs like medical expenses, care requirements or other urgent financial obligations. Unlike the standard death benefit — which beneficiaries receive only after the policyholder's death — the ADB rider grants immediate access to funds, which can help alleviate financial strain during a critical period.

It's essential to recognize that using the ADB may lead to a corresponding reduction in the total death benefit available to beneficiaries and could have implications on premiums or taxes. We recommend carefully considering and consulting a financial professional before using an ADB rider.

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How Accelerated Death Benefit Riders Work

ADB riders are a lifeline for policyholders diagnosed with terminal or chronic illnesses, enabling them to access part of their death benefit while still alive. An ADB rider serves a dual purpose. First, it helps qualifying policyholders cover immediate financial needs such as medical expenses or daily living assistance. Second, it adds flexibility to a life insurance policy — enabling policyholders to adapt to unexpected life changes such as paying off debts, funding a child's education or pursuing personal goals.

The process is governed by the life insurance policy's specific terms and the nature of the diagnosis. Although the rider offers immediate financial relief, it may decrease the remaining death benefit for beneficiaries and could influence other aspects of the policy. It's advisable to seek professional guidance before deciding to add this rider.

Qualifying for the Benefit

To qualify for an ADB rider, a policyholder must meet specific criteria defined by the insurance provider. These criteria often include:

  • Terminal Illness Diagnosis: A medical diagnosis confirming a life expectancy of typically 12 months or less.

  • Chronic Illness Diagnosis: A condition that restricts the ability to perform at least two daily living activities without assistance.

  • Other Qualifying Conditions: Some policies may include additional qualifying conditions, such as a critical illness diagnosis.

HOW MUCH FINANCIAL SUPPORT CAN A POLICYHOLDER QUALIFY FOR?

The amount that policyholders may access from an ADB rider varies widely depending on the policy's terms and the nature of the diagnosis.

Many policies allow policyholders diagnosed with a terminal illness to access a significant portion of the death benefit, ranging from 25% to 100%, depending on the plan and insurer. For chronic illness diagnoses, the percentage might be lower — 25% to 50% of the death benefit.

How To Claim an Accelerated Death Benefit

Claiming an ADB requires attention to detail, adherence to specific policy requirements and understanding of several key stages, including providing accurate medical documentation, navigating the intricate approval process, determining the benefit amount and receiving the funds.

1
Documentation

The policyholder must provide medical documentation that confirms a diagnosis meeting the rider's criteria. This documentation serves as the foundation for the claim and must be carefully prepared to align with the policy's specific requirements.

2
Approval

Upon receiving the documentation, the insurance provider undertakes a thorough review. The provider may request additional information or medical examinations to validate the claim. This approval process is meticulous and designed to ensure that the claim aligns with the policy's terms and conditions.

3
Determination of Benefit Amount

The provider determines the benefit amount. This calculation involves assessing the percentage of the death benefit that the policyholder can access — a figure based on the policy's terms and the nature of the diagnosis. This stage is highly dependent upon the policy's provisions and may significantly vary between different providers and policy types.

4
Disbursement

Once the provider determines the benefit amount and approves the claim, it will release the funds to the policyholder. This disbursement can be paid out as a lump sum or in installments, depending on the policy's structure and the policyholder's preferences.

Impact of Accelerated Death Benefit Riders

The impact of ADB riders extends beyond the immediate financial relief they provide. They affect the overall death benefit, premiums, taxes and even the emotional well-being of the policyholder and their family. There are several areas of impact to consider before someone should move forward with an ADB rider.

Impact Area
Description

Reduction in Death Benefit

The amount accessed is directly subtracted from the total death benefit. For example, if a policyholder utilizes 50% of the death benefit through the rider, the remaining amount for the beneficiaries would be reduced by the same percentage.

Effect on Estate Planning

This reduction may have implications for estate planning, potentially affecting the inheritance left to heirs and beneficiaries, the estate's tax treatment and the need to re-evaluate the estate strategy to ensure the plan aligns with the policyholder's wishes.

Adjustment of Premiums

The effect on premiums can vary widely among different policies and providers. Some policies may increase premiums if the rider is utilized, reflecting the provider's increased risk exposure. Other policies may have no effect on premiums even after accessing the rider.

Taxes

Depending on the nature of the illness and the policy's structure, accessing the rider may create tax liabilities, further affecting the net benefit. In some cases, the benefits may be tax-free, particularly if the policyholder meets specific criteria related to terminal illness.

Fees and Costs

Some policies may impose fees or costs for accessing the rider, which could reduce the net amount received by the policyholder.

Common Misconceptions

Understanding the ADB rider requires dispelling common misconceptions that may lead to confusion or misinformed decisions. Here are some prevalent myths and the truths behind them:

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Benefits and Drawbacks

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Example Scenario: Terminal Illness Diagnosis

Facing a terminal illness is a profound challenge, and the financial implications can add to the burden. The following scenario illustrates how an ADB rider can provide financial support and flexibility for someone diagnosed with a terminal illness.

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Comparing the Accelerated Death Benefit to Other Riders

Understanding how ADB riders compare to other common riders can help policyholders make informed decisions to meet specific needs. Below are some of the key differences and similarities between ADB riders and other similar options.

Accelerated Death Benefit (ADB) Rider

  • Purpose: Provides access to a portion of the death benefit if diagnosed with a terminal or chronic illness
  • Cost: May be included at no additional cost or require a premium
  • Impact on Death Benefit: Reduces the overall death benefit available to beneficiaries
  • Eligibility: Requires a qualifying medical diagnosis

Long-Term Care (LTC) Rider

  • Purpose: Offers financial support for long-term care services, such as nursing home care or home health care
  • Cost: Typically requires an additional premium
  • Impact on Death Benefit: May reduce the death benefit if used, similar to ADB
  • Eligibility: Depends on the need for long-term care, not necessarily a terminal or chronic illness

Critical Illness Rider

  • Purpose: Provides a lump sum payment if diagnosed with a specific critical illness, such as cancer or heart attack
  • Cost: Usually requires an additional premium
  • Impact on Death Benefit: May or may not reduce the death benefit, depending on the policy
  • Eligibility: Requires a diagnosis of a specific illness listed in the policy

Waiver of Premium Rider

  • Purpose: Waives premiums if the policyholder becomes disabled and unable to work
  • Cost: Often requires an additional premium
  • Impact on Death Benefit: Does not reduce the death benefit
  • Eligibility: Requires a qualifying disability

Frequently Asked Questions About Accelerated Death Benefit Riders

Navigating the complexities of ADB riders can lead to many questions. In this section, we address some of the most common inquiries and concerns related to ADB riders.

Does claiming an ADB rider affect the remaining death benefit?
Are there any costs or fees associated with an ADB rider?
Are there any tax implications for using an ADB rider?
Can you add an ADB rider to an existing life insurance policy?
What are the eligibility criteria for claiming an ADB rider?
Can you choose how the funds from an ADB rider are disbursed?
What happens if you don't use the entire ADB?

About Nathan Paulus


Nathan Paulus headshot

Nathan Paulus is the Head of Content Marketing at MoneyGeek, with nearly 10 years of experience researching and creating content related to personal finance and financial literacy.

Paulus has a bachelor's degree in English from the University of St. Thomas, Houston. He enjoys helping people from all walks of life build stronger financial foundations.


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