An accelerated death benefit (ADB) is a benefit that can be attached to a life insurance policy that enables the policyholder to receive cash advances against the death benefit in the case of being diagnosed with a terminal illness. A clause in certain life insurance policies that enables the policy holder to receive the benefits before death. Insurers offer anywhere from 25% to 100% of the death benefit as an early payment.
Life insurance policies that include accelerated benefit riders provide several types of protection to policyholders in one vehicle. These policies can now offer protection against chronic illness, critical illness and nursing home care on top of the traditional death benefit and/or cash value.
Generally, any amount received under a life insurance contract on the life of a terminally ill insured or a chronically ill insured will be treated as an amount paid by reason of the death of the insured. Thus, an accelerated death benefit meeting these requirements will generally be received free of income tax.
This information is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor.
