Accelerated benefits, also known as living benefits, are payouts from a life insurance policy available to the policyholder before death, usually in the event of a catastrophe. Claiming such benefits will result in a smaller payout for survivors after death, but may be necessary to cover immediate expenses in an emergency situation. Another option for a life insurance policyholder who wants to access benefits before death is a settlement, where the policyholder sells the insurance to a third party for a percentage of the value, naming that party as the beneficiary and taking the cash up front.
These benefits can be helpful in an emergency situation, and generally can only be taken once, and under very controlled circumstances. Policyholders who want to access accelerated benefits need to fill out some paperwork and may need to provide documentation to prove their eligibility. For example, an insurance company may pay out in the event of a terminal diagnosis where the patient has six months or less to live.
People can use their accelerated benefits in any way they see fit. They may choose to apply the money to health care and other expenses, or to estate planning and preparation to make less work for survivors. They can also use the money for private, unrelated purposes, like traveling. These benefits before death may be available in the event of a sudden acquired disability, a chronic illness, or a probably terminal diagnosis.
There can be disadvantages to taking accelerated benefits out of a life insurance policy. Policyholders who want to leave a legacy to survivors may not want to accept living benefits because they will reduce the future payout. This option may be better than a settlement in terms of total cash available from the policy, split between death and living benefits. In cases where benefits are directed to a survivor like a spouse, the policyholder may want to have a discussion with the beneficiary about the available options to determine the best approach to the situation.
The time frame on accessing accelerated benefits can vary. In these cases, time is clearly a factor because the patient is usually critically ill and in need of financial assistance. Insurance companies can process claims very quickly, especially if the policyholder has an agent to act as an aggressive advocate. In the event a claim is denied, the policyholder can accept the denial or file an appeal to demand the benefits, providing information to support the claim of eligibility.