What is an

Accelerated Death Benefit?

The Accelerated Death Benefit (ADB) is the second of two tax-exempt Programs created by HIPAA. It is a carrier-sponsored feature in many individual and group life insurance policies for terminally ill Insureds with a life expectancy of 6 to 12 months. The Policy Owner receives a tax-exempt loan from the carrier, continues sufficient premium payments, and collects the net death benefit after the carrier deducts loan principal, interest, and fees.

Program Overview

Accelerated Death Benefit

Loan Structure and Net Death Benefit
The ADB cash advance is a loan from the carrier to the Policy Owner, collateralized by the policy’s death benefit. The Policy Owner must maintain the policy through premium payments if the cash surrender value becomes depleted. When the Insured dies, the carrier deducts ADB Loan principal, interest, and fees before sending the net death benefit to the named beneficiary.
Health and Lifespan
The Policy Owner must submit an ADB Claim Form to the carrier and include an attending physician’s certification of the Insured’s likely death within the policy’s narrow specifications, typically 6 months or sometimes 12 months depending on the carrier. Carriers may ask for more details and copies of medical records before making a decision on the Claim. Claims are sometimes denied. The Policy Owner may resubmit at another time, but American Life Settlements may be able to secure the right bids sooner from one or more of the five other Programs.
Premium Support of the Policy
The Policy Owner has to keep the policy in good standing right to the point when the Insured dies. The same amount of premium support will be required even though the death benefit has been reduced dollar-for-dollar by Loan principal, interest, and fees. The premiums may be paid from cash surrender values until they are exhausted, at which time the Policy Owner must resume paying premiums.
Payout limitations
ADB Loan payouts are sometimes as small as 15%. Depending on the carrier, there may be a cap on maximum payout when multiple policies are submitted. ADB Claim processing is strict and Claims may be declined.
Other Possible Programs
Very few Insureds are able to qualify for an Accelerated Death Benefit because the attending physician has to certify that death is likely within just 6 months, or 12 months with some insurance companies. Doctors will not complete the carrier’s ADB Claim Form unless the Insured clearly qualifies. If the Doctor will instead certify that death is probable within 24 months, a tax-exempt Viatical Settlement would be among the other Programs to consider if the primary goal is to receive a lump-sum payment and stop paying premiums. Without that letter, a policy sale would be a Life Settlement. If the goal is to get some money, stop paying premiums, and leave some benefit Retained Benefit Life Settlements and Private Policy Loans could be a better fit. And, if the Insured is presently receiving licensed Long-Term Care, Long-Term Care Life Settlements bids could be sought. American Life Settlements always tries to get bids for as many Programs as possible so the Policy Owner can make the best decision.

Accelerated Death Benefit

Basic Features

	Features
Payout Structure	Some cash now, some later
Minimum death benefit of policy	No minimum death benefit
Minimum Age	No minimum age
Longest probable lifespan	6-12 months, depending on the carrier
Tax status of program	Tax exempt

Compare All 6 Programs

You may have additional choices.

You might qualify for an Accelerated Death Benefit if:

You have become terminally ill since policy issuance
The ADB is a feature of the policy or policies being submitted
Your lifespan is not beyond carrier criteria, usually 6 months but is sometimes 12 months

Alternatives to the Accelerated Death Benefit

Difficulties and Restrictions

Qualifying for an Accelerated Death Benefit (ADB) is difficult. First of all, some policies do not have an ADB even though HIPAA became law in 1996. HIPAA allows, but does not require, carriers to offer this feature. It also lets carriers set limits for maximum allowable lifespan, payout percentages, total payouts per Insured, and more. As a result, payouts are only 15% with some carriers. ADB Claim Forms include a requirement for an attending physician to offer a medical judgment that the Insured will probably die within the carrier’s stipulated timeline. Lifespans are typically 6 months or less but some carriers go up to 12 months. None of them use the 24-month limit that HIPAA established for tax-exempt Viatical Settlement policy sales.

Policy Owners of multiple policies face yet another challenge when the total coverage exceeds $1 million. Carriers typically limit payout percentage per policy with a cap for all cash payouts per Insured.

That said it must be kept in mind that the ADB does generate some up-front cash in the form of a tax-exempt loan and delivers tax-exempt net death benefit after deducting loan principal, interest, and fees.

Alternatives to the ADB

The question here is what might be available for the Policy Owner who believes the Insured will qualify for an ADB.

Example One: If the primary goal is to bring in as much cash as possible now, quit paying premiums, and not have any benefit later, the traditional lump-sum Viatical Settlement could be of great value.

Step one: pursue the ADB with the carrier.
Step two: submit policy or policies to American Life Settlements for quotes at the same time.
Step three: receive the ADB loan or a Letter of Declination.
Step four: sell the reduced policy for a Viatical Settlement or another Program.

By submitting to American Life Settlements right away as in (2), the Policy Owner saves time no matter the outcome of the ADB Claim.

Example Two: If the Insured’s attending physician will not sign a HIPAA-compliant letter stating death is probable within 24 months or less, the Life Settlement would be an alternative to the Viatical Settlement as it provides the maximum amount of cash now.

Example Three: If the primary goal is to get some cash now, quit paying premiums, and receive some benefits later, the Retained Benefit Life Settlement might work better.

Example Four: If the Insured is receiving any form of licensed Long-Term Care, American Life Settlements would also request quotes for the tax-exempt Long-Term Care Life Settlement. It has no age limits and the minimum policy is $10,000.

Example Five: As for the Private Policy Loan, it requires an Insured who, typically, is dying from last-stage metastasized cancer and is at least age 60 with a policy of $100,000 or more. The maximum lifespan is 2 years. The Loan does not require a HIPAA Letter.

Conclusion: There are many ways to optimize this situation. If you wish to discuss your specific needs, please fill out our Free Policy Evaluation form or call 888.247.3659 weekdays 8:30 AM – 8:30 PM Eastern Time.

Accelerated Death Benefit

Frequently Asked Questions

Is submitting policies to American Life Settlements for quotes a good idea even if the Insured might qualify for an Accelerated Death Benefit?

There are many reasons for submitting policies to American Life Settlements for quotes at the same time that an ADB Claim is being considered or is already being processed. If the ADB Claim is denied, having quotes underway will save valuable time. If the ADB Claim is approved, the Policy Owner will be closer to seeing what could be done with the balance of the policy other than keeping it and continuing to pay premiums.

Either way, American Life Settlements could seek bids not only for a Viatical Settlement but possibly for a Private Policy Loan and a Retained Benefit Life Settlement.

American Life Settlements will also submit the case for Long-Term Care Life Settlement bids whether or not the Insured is presently receiving any form of licensed LTC. Insureds with the ADB profile sometimes need LTC which includes In-Home Nursing/Health Care, Assisted Living, Alzheimer’s/Memory Care, Skilled Nursing Facility Care, and Hospice Care. It should also be noted that payouts from the Long-Term Care Life Settlement are not subject to the many underwriting qualifications and limits of Long-Term Care policies such as Elimination Periods, selection of Providers, and payment caps.

The following 5 other Programs that might be considered instead of the Accelerated Death Benefit, or possibly used for the reduced policy after the ADB is transacted.

Does the Policy Owner have to keep paying premiums after the Accelerated Death Benefit Claim has been paid?

The Policy Owner must keep the policy in good standing after the Accelerated Death Benefit Claim has been paid. The same level of premium support is required even though the death benefit was reduced by the ADB loan payout, interest, and ADB loan fees. If the policy is Term, regular premiums will have to be paid exactly as before. If the policy is Universal Life or Whole Life, cash surrender values could be used to keep the policy afloat until fresh premiums would be needed. This information is fully disclosed to the Policy Owner by the carrier along with details of the interest rate of the Accelerated Death Benefit loan and loan fees.

What are the usual restrictions on maximum lifespan and total cash payouts for Accelerated Death Benefits?

Most carriers restrict the Accelerated Death Benefit to Insureds with a maximum lifespan of 6 months, though some will accept 12 months. The Insured’s physician will sign the carrier’s ADB Claim Form only if the short timeline is medically justifiable. Carriers may exercise their legal right to reject Claims, same as auto and homeowner carriers.

Carriers limit the total amount of cash that can be paid, regardless of the total amount of coverage is in force. These cash limits vary among carriers from $250,000 to $1 million regardless of how many policies are involved or the grand total of the coverage. This information comes as a shock and disappointment to those who mistakenly thought every policy could receive a full ADB payout. Many of American Life Settlements’s Funders have no limits on total cash payouts per policy or per Insured.

The percentage of ADB payout varies from 15% to 75% of the death benefit, limited by the cap on total cash payout. Whether this will be enough up-front cash is for the Policy Owner to decide.

American Life Settlements welcomes the opportunity to be of service on this difficult topic even though the transaction is entirely between the Policy Owner and the carrier.

What if the Insured’s attending physician will not sign the Accelerated Death Benefit Claim form?

Most ADB Claim forms require an attending physician’s written statement that the Insured will likely die within the carrier’s timeline, usually 6 months, but with some carriers, it is 12 months. A medical narrative is required. Doctors will not sign the ADB Claim form unless they are completely convinced that the short timeline is realistic. In that situation, the Policy Owner would have to wait until the Insured’s health declined enough for an attending physician to sign the ADB form. American Life Settlements is not involved with ADB Claims and does not require physician statements on any form, but we stand ready to develop quotes for as many of the 5 other Programs as possible.

What if the carrier denies an Accelerated Death Benefit Claim?

Carriers do not always agree with the statement from the Insured’s attending physician that death is likely within the lifespan limit on the Accelerated Death Benefit Claim form. Medical records may be requested to substantiate the Claim. If the carrier concludes that the Insured will probably live longer than its acceptable limit, it will deny the Claim. The Policy Owner may protest the denial, but ultimately it is the carrier’s decision to make. American Life Settlements may develop quotes for Insureds who may live up to 23 years, not just 6 or 12 months. Our other 5 programs may be an alternative to the Accelerated Death Benefit.

Why is the Accelerated Death Benefit such an important feature in life insurance?

The ADB is the fastest method for getting money out of a policy aside from cash value withdrawals from Universal Life and Whole Life. The ADB payout is often much larger than any cash surrender value. It usually takes 2 to 3 weeks for the carrier to accept or deny the ADB Claim. If the Claim is accepted, payment will follow within 1 to 2 weeks. The ADB is tax-exempt per HIPAA and the money may be used for any purpose, just as with any Viatical or Life Settlement.

If the Claim is denied, the Policy Owner may protest, but historically that rarely changes the carrier’s original decision. The Policy Owner must then wait to resubmit the ADB Claim until the Insured’s health gets worse or 3 months have elapsed. The possibility of Claim denial is among the many reasons why Policy Owners should consider submitting policies for quotes with American Life Settlements as soon as the need for cash arises rather than wait until the end is near.

Do all life insurance policies automatically have an Accelerated Death Benefit Rider?

Most carriers offer the Accelerated Death Benefit as an optional, no-cost Rider or Endorsement. Some still do not provide the ADB despite the fact that HIPAA created it in 1996. When writing up new life insurance, Agents should routinely check the ADB box. Unfortunately, Agents all too often skip this simple task. If the policy is issued without ADB this oversight must be detected and corrected within the narrow timeline of delivery. Since carriers do not allow the retroactive addition of ADB, the Insured will never be able to utilize it. New insurance applicants should inquire about ADB before signing an application.

How could carriers improve their policies, help their clients, and take business from Life Settlement Brokers, Funders, and Lenders?

Carriers could build much stronger life insurance policies if that wanted to help more clients, and take business from Life Settlement Brokers, Funders, and Lenders. The most important change would be to allow the same 24-month lifespan that HIPAA created for the Viatical Settlement. Anyone with 24 months to go might well have a better quality of life, and perhaps a bit longer life, with tax-free cash. Those with just 6 or 12 months by definition would not fare as well. American Life Settlements continues to believe this is the greatest flaw in life insurance since HIPAA went into effect January 1, 1997. Plenty of time for carriers to have figured all this out.

Increasing the payout percentage would be the second most important step. Most Americans are woefully underinsured even counting employer-sponsored coverage. A 15% payout on an average policy around $150,000 would be $22,500 and the Policy Owner still must support premiums for $150,000. Make that 75% and the total would be $67,500 with the side benefit being that today’s marketplace makes it virtually impossible to sell for that much.

The first two steps would represent a sea change of improvement for America’s lower and middle-income Insureds. Agents could be trained to mention ADB as yet another reason to buy enough life insurance.

The last improvement is the least likely to happen: reducing or eliminating the cap on total cash payouts beyond what we see today, $250,000 – $1 million. We are told “Never say never,” but American Life Settlements says this one is not going to happen. Consequently, Life Settlement Brokers, Funders, and Lenders will continue to serve all those who cannot get the job done with their poorly-designed policies. Doors are open for as little as a $10,000 policy with no limit on the upside.

What is the section of HIPAA concerning Business-Related Policies?

The Viatical Settlement policy sale and the Accelerated Death Benefit were granted tax exemptions by HIPAA. Unfortunately, one Senator added a section eliminating the tax-free feature from certain business-owned policies. American Life Settlements cautions it business clients about this situation. Here is the section from HIPAA:

“(5) EXCEPTION FOR BUSINESS-RELATED POLICIES.—This subsection shall not apply in the case of any amount paid to any taxpayer other than the insured if such taxpayer has an insurable interest with respect to the life of the insured by reason of the insured being a director, officer, or employee of the taxpayer or by reason of the insured being financially interested in any trade or business carried on by the taxpayer.”

Is the Accelerated Death Benefit allowed in all states?

Every carrier must have its Accelerated Death Benefit approved by the Insurance Department of the states in which they offer life insurance policies. Some carriers have had their applications for ADB approval held up for months and years. For new insurance buyers, American Life Settlements believes ADB is very important and serves as a way of defining the difference between carriers..

Is "Living Benefit" another term for Accelerated Death Benefit?

HIPAA created the Accelerated Death Benefit in 1996. For marketing purposes, some carriers prefer to rename this “Living Benefit”.

HIPAA - Public Law 104-191

Here are links to the entire Health Insurance Portability and Accountability Act of 1996, followed by the related section of the Internal Revenue Code:

Health Insurance Portability and Accountability Act of 1996 – Public Law 104-191 (HIPAA).

Title 26 of the U.S. Internal Revenue Code 101(g), pages 427-428

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Accelerated Death Benefit?

Program Overview

Loan Structure and Net Death Benefit

Health and Lifespan

Premium Support of the Policy

Payout limitations

Other Possible Programs

Basic Features

You might qualify for an Accelerated Death Benefit if:

You have become terminally ill since policy issuance

The ADB is a feature of the policy or policies being submitted

Your lifespan is not beyond carrier criteria, usually 6 months but is sometimes 12 months

Alternatives to the Accelerated Death Benefit

Difficulties and Restrictions

Alternatives to the ADB

Frequently Asked Questions

Legal

Company

Life Settlement Programs