What you need to know about accelerated life insurance benefits

Life insurance might seem straightforward: You buy a policy, pay for it annually or in installments, and then, when you die, your policy provides benefits to your loved ones to help them with funeral expenses and other costs. While that’s all true, there’s an advantage to life insurance that you may not have considered.

What are accelerated benefits?

You might be able to tap into your benefits while you’re still alive. For example, you may be able to get an advance payment on your policy’s death benefit to help during a long-term illness. Those payments can be made directly to you and are called “accelerated benefits,” or “living benefits.”

Permanent or whole life insurance policies are considered an asset, which means you can use them as part of a financial strategy, as long as you qualify and follow certain rules. “It’s similar to supplemental health insurance, which provides financial resources if you’re seriously injured or become ill,” says Tasha Riggs, a licensed insurance agent based in Westminster, Colorado. “It’s a way to make sure you can pay your bills, like your mortgage.”

Before you learn more about accelerated benefits, it might be a good time to think about getting life insurance in place. Call a licensed insurance agent at (800) 827-9990 for more information.

Why might you need accelerated benefits?

Accelerated benefits work best in situations that include:

• Terminal illness, with death expected within a specified period
• Acute illness that will become terminal or life-threatening without treatment, like heart disease
• Illness or injury requiring extraordinary treatment, such as an organ transplant or continuous life support
• Long-term, in-home care in which you can’t perform daily functions for yourself, such as eating and bathing
• Permanently moving into a nursing home

Some life insurance policies include an accelerated benefits provision as part of their coverage. With others, you can choose to attach it as a rider, Riggs says. (Riders are add-ons that give you additional coverage.) Either way, the benefits are designed to protect you in the event of unexpected medical circumstances. Currently, more than 150 companies in the United States offer some type of accelerated benefits, and it’s estimated that more than 3 million Americans are protected in this way.¹

Not all policies provide accelerated benefits in the same way. For example, if you have life insurance coverage through the U.S. Department of Veterans Affairs, you can get accelerated benefits only if you’re terminally ill and have a written prognosis from your doctor stating that you have 9 months or less to live.

Even if you aren’t in a situation like that one, it’s a good idea to check your coverage, Riggs suggests. Knowing that you have more options in circumstances like these can help you preserve your retirement account or other investment accounts, she says. Also, if you discover that you don’t have an accelerated benefits option, you may be able to add one to your policy.

Before you can get an accelerated benefits option, you have to have life insurance in the first place. Call a licensed HealthMarkets agent at (800) 827-9990 start planning your coverage.

How do you pay for accelerated benefits?

You can pay for accelerated benefits in a number of ways, depending on your life insurance policy’s terms. The cost may be included in your insurance premium, or it may be added to your policy for a small amount, like a percentage of the base premium. In some cases, you may be charged for accelerated death benefits only if you choose to use them.

How can you receive accelerated benefits?

When you get your accelerated benefits, it’s important to remember that you’re reducing the amount your beneficiaries will be paid after your death. Essentially, you’re spending some of your death benefits early. Here’s what you need to know about receiving them:

• If you use most of your benefits while you’re sick, your beneficiaries won’t be left with much upon your death, so you’ll have to decide which cost is more important to ease.
• Accelerated benefits usually range from 25% to 100% of the death benefit, depending on your policy and the state you live in.¹
• If you’ve taken out loans against a policy, it may reduce the amount of money that you can get ahead of time.
• Each policy (or rider) specifies how you’ll eventually be paid. Sometimes you’ll be paid monthly, while in other cases you’ll get a lump sum. You also may be able to choose a method of payment.

What else should you know about accelerated benefits?

In many cases, you may not have to pay federal income taxes on your accelerated benefits. However, in the case of chronic illness, you may have to have your condition certified by your doctor each year to avoid being taxed. So before you choose to speed up your benefits, talk to a tax adviser. Also keep in mind that collecting accelerated benefits may affect your eligibility for Medicaid, so that’s another issue that’s worth bringing up with your adviser.

Many variables will likely factor into your decision, says Riggs, and you’ll need to understand all of them before you decide what’s best for you. You’ll definitely want to read your policy closely and maybe even talk to your state insurance office. Another valuable option is being able to talk to a licensed insurance agent at (800) 827-9990 about the benefits of a life insurance policy.