Paying for care
Accelerated death benefit
An accelerated death benefit is a payment of part of a life insurance death benefit to the insured while still alive. It is available when the insured is terminally or chronically ill, as defined by the IRS. Some policies include it at little or no cost, and others charge extra.
Why it matters for your family
The IRS defines a chronically ill person as someone certified by a licensed health care practitioner as unable to do at least two daily living activities without substantial help for at least 90 days, or someone who needs supervision due to severe cognitive impairment. A terminally ill person has a physician's certification of a life expectancy of 24 months or less. Payments reduce what heirs receive. Tax treatment depends on the situation and on the amount. A common mistake is to assume the whole policy is available. Many policies cap the payout. Ask the insurer, and ask a tax professional.
Source: irs.gov
Related terms
- Life insurance with long-term care riderA life insurance policy with a long-term care rider lets the owner use part of the death benefit while alive to pay for qualified care.
- Life settlementA life settlement is the sale of a life insurance policy to a third party for cash.
- Hybrid long-term care policyA hybrid long-term care policy combines life insurance or an annuity with long-term care benefits.
- Long-term care insuranceLong-term care insurance is a private policy that pays for help with daily living when a person can no longer manage alone.
- Private payPrivate pay means a family pays for care directly from its own money.
- Activities of daily living (ADLs)Activities of daily living (ADLs) are the basic self-care tasks people do each day.
