Financial Implications of Accelerated Death Benefits

An accelerated death benefit is a benefit that is attached to your life insurance policy, which enables you to receive a cash advance against your death benefit in the case that you are diagnosed with a serious illness. Many people that decide to get an accelerated death benefit only have a few months or years to live and so use the money that they receive in order to pay for treatments and other expenses to do with handling an illness. Picking a life insurance policy that comes with an accelerated death benefit will allow a policyholder to afford the expenses of their daily lives in order to remain the most comfortable while also ensuring that their family is taken care of when they pass away. Jason Kestler, who is the CEO and president of Kestler Financial Group, stated that an accelerated benefit is essentially a way to give consumers a larger amount of control over their life insurance protection.

Medical Expenses

One of the most common reasons why people declare bankruptcy is due to substantial medical expenses that they are unable to afford. An accelerated death benefit can help pay for these expenses, and help avoid any unnecessary stress caused by the financial implications of having a terminal illness. This will allow you and your family to focus on each other and not on paying for expensive medical bills.

Offset the Financial Impact on Retirement Assets

Say you’ve saved a substantial amount of money for your retirement, and are expecting a good retirement income from your savings and pension, and you also have other types of assets that you would like to pass down to your kids that will be taxed when you pass away. You can purchase a life insurance policy with an accelerated death benefit in order to aid in covering those taxes and other such expenses with a policy that has an accelerated death benefit. If you become ill down the road then your death benefit can then be allocated in order to pay for medical expenses that aren’t covered by your health insurance policy.

Aid in Equalizing Pension Benefits

An accelerated death benefit can help your spouse if you have unequal pension benefits. For instance, if you have a large pension income and a smaller survivor benefit, and your spouse has no pension then if you pass away prematurely, he or she will be unable to enjoy the same type of lifestyle that you did before, and will likely have to downsize their lifestyle. In order to avoid this possibility then you can use your excess pension income in order to purchase a life insurance policy that has an accelerated death benefit.

Making Withdrawals

Once you’ve qualified for an accelerated death benefit you can withdraw money as is allowed under your life insurance policy’s rules. However, keep in mind that you will have to pay a price for doing so. Some life insurance companies require that you pay for an accelerated death benefit add on upfront in the form of additional charges that are added onto your original policy’s premiums. Some life insurance policies will simply reduce the actual death benefit in order to compensate. The nature of this reduction varies by pricing, design and company.

Tax Implications

Gaining access to your death benefit early usually has tax implications. The Internal Revenue Service excludes death benefits from federal income tax when it comes to policyholders that are terminally ill. Death benefits that are given to chronically ill policyholders tend to also be excluded from taxes, that being said, there are often limits that are placed on this rule. An annual certification given by a doctor is also required in order to prove that the taxpayer is legitimately ill.

The Biggest Financial Ramification

The most significant financial implication of an accelerated death benefit will not affect you at all. Instead, taking out your death benefit early will likely hurt your loved ones, as you are essentially reducing the amount that you are leaving to your surviving family members. This can also impact your estate taxes and other such legacy-planning expenses.

Review

Before you encounter a health condition that is so expensive or severe that it requires you to take out an accelerated death benefit, it is highly recommended that you review your eligibility requirements and the cost of doing so. If the time does come when you need to withdraw your death benefit then you should first seek council with a professional. It is recommended that the first thing you do is sit down with an advisor or agent and review all of your assets. You should ensure that you have exhausted all other better alternatives before you determine that an accelerated death benefit is your best option.

Comparison Shop

When it comes to looking for an accelerated death benefit that matches your situation, it is highly recommended that you do some major comparison-shopping. One important factor to keep in mind is how you want to pay for this option. For instance, you may prefer to receive an increased premium as the form of payment. This will typically mean your life insurance premium will increase anywhere from 5 to 15% in order to gain the option of having an accelerated death benefit. However, you may also be able to find a policy that will only require that you pay if you need to use the accelerated death benefit.

 

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