Accelerated death benefits (ADB) are sometimes offered to a policyholder before his death. These “death benefits” can be paid in advance of death because the policyholder has been diagnosed with a terminal or life-threatening disease such as cancer or end-stage renal disease and is expected to live for a short time (generally one year or less). The benefits are paid to the policyholder or his beneficiaries and are often used to finance medical treatments or pay for other health care expenses or other end-of-life needs.
Eligibility for accelerated benefits is generally not activated until a terminal illness has been diagnosed. In order for a claim to be recognized, an insurance company may require evidence of the following:
- A terminal or final illness with death expected within a fixed number of months.
- An acute illness, such as an acute heart disease or AIDS, which would result in a drastically reduced life span without extensive treatment.
- A catastrophic illness requiring extraordinary treatment, such as an organ transplant.
- Long-term care needed because the policyholder cannot perform a number of daily living activities, such as bathing, dressing, or eating.
- Permanent confinement in a nursing home.
Of course, insurance companies have very specific requirements for paying an accelerated death benefits claim, as we discuss below. If you are having difficulty, please contact the Law Offices of Mark S. Guralnick at 1-866-337-2900 to assist you. Our experienced attorneys have the experience, the credentials and the resources to fight the insurance companies.
How Much Money Do I Get?
The first thing you need to know is that the amount paid to the beneficiary is reduced by the amount which the policyholder receives as an accelerated benefit. If the policy proceeds are entirely depleted before the policyholder dies, no benefit will be paid after his death. Thus, for example, assume that a policyholder owned a $120,000 life policy with an accelerated death benefit that paid $2,500 each month. If the policyholder lived for four years and collected 48 monthly payments, the accelerated payments would effectively reduce his life insurance death benefit on his life insurance contract dollar for dollar, all the way down to zero.
From a legal point of view, it is important to recognize at the time of terminal diagnosis what the consequences may be in terms of death benefits ultimately paid to the beneficiaries. Beneficiaries may be getting much less than they expected to receive – or nothing at all.
What Should I Think About?
There are many issues to think about when considering accelerated death benefits. Proceeding too quickly may expose you and your family to additional costs, tax consequences, legal risks, misunderstandings or a lack of insurance coverage. Here is the top ten list of questions you should be discussing with your attorney and your insurance representative:
- Taxes. Accelerated benefits are not generally subject to federal income taxes. A terminally ill person (defined under federal tax law as a person having only 24 months to live) would not have to pay taxes on accelerated benefits. A chronically ill person is also considered exempt but may be required to seek re-certification as exempt on an annual basis. However, you should note that federal tax law impose withholding requirements for life insurance policies. If you elect to have federal income tax withheld, some states will require that state income tax also be withheld. You should consult a tax professional about these details.
- Medical Expense Alternatives. Are accelerated death benefits the best alternative for our family? Or should we be considering other long-term care insurance products and programs which are better suited for the medical and health care needs of our family? See also #8 below
- If the beneficiaries named in the life insurance policy will be denied a death benefit if the policyholder is required to use his accelerated benefits, are there any other provisions or benefits being made for those beneficiaries?
- If you receive accelerated benefits, the money may be treated as “income,” which may affect you eligibility for Medicaid benefits.
- Percentage of Benefits. The amount you can “accelerate” from your policy depends on your policy’s face value, the terms of your contract, and your state of residence. It generally ranges from 25 to 95 percent of the death benefit, although some companies will go as high as 100 percent of your policy’s face value (while reducing the amount of your benefit to compensate for the interest it loses on early payout).
- Payout Method. If you purchase accelerated benefits, and you claim them and qualify for them, how will they be paid to you? Some policies provide for monthly payouts. Others authorize a lump sum payment. To avoid misunderstandings and confusion, you should ensure that you are clear on the payout method.
- Change in Health Circumstances. If your health improves after you start receiving accelerated benefits, as a result of a cure or other unforeseen medical intervention, you are not required to repay the insurance benefits to the insurance company. However, if there is any evidence that you misled the insurance company, or that you or your beneficiaries made misrepresentations to qualify for the accelerated benefits, the insurance company may prosecute a claim for fraud against you and may seek restitution as part of that claim.
- Long-Term Care. What other arrangements have been made for long-term care coverage? Accelerated life insurance death benefits are not the best, or the only method, for addressing the final years and the end-of-life “comfort needs” of a chronically ill or terminally ill family member. In fact, a long-term care policy may prevent you from having to deplete your life insurance benefits or other savings to pay for long-term care services.
- Accelerated or Viatical? What is the difference between accelerated death benefits and viatical settlements? Accelerated benefit pay you a percentage of your death benefit, and if not completely depleted, then the balance is left for your beneficiary. With a viatical settlement, your life insurance policy is sold outright to a third party such as a viatical settlement company, which will pay a percentage of the death benefit upfront. The third party then pays all the remaining premiums to become the sole beneficiary of the life insurance policy and receive the full benefit of the policy when you die.
- Federal/Military Benefits? Accelerated Death Benefits are available to federal employees as well as members of the U.S. military service. Federal employees are entitled to accelerated benefits if they are enrolled in the Federal Employees’ Group Life Insurance Program (FEGLI). Military members are entitled to accelerated benefits if they are enrolled in either the Servicemembers’ Group Life Insurance Program or the Veterans’ Group Life Insurance Program.
Let Us Go to Work for You!
We can help you address all of these issues. Whether you are considering accelerated death benefits as an option, or trying to claim accelerated death benefits after someone has been diagnosed with a terminal illness, please do not hesitate to contact us to assist you. We can assist you with completing the claim application completely, obtaining and completing all authorizations and releases for information, securing the necessary physicians’ statements, and if necessary, the necessary employer’s statement.
You may also need to obtain a Consent Form from the beneficiary who will be giving up some of his or her share of the life insurance proceeds to fund the accelerated benefit.
With more than 30 years of experience, the Law Offices of Mark S. Guralnick has the credentials, the skills and the resources to tackle your case. Contact us at 1-866-337-2900 for a free, legal case evaluation.