In the context of life insurance in Canada, an “accelerated death benefit” is a feature included in some life insurance policies that allows the policyholder to receive a portion of the death benefit while the insured is still alive, under specific circumstances. This benefit is typically invoked in cases where the insured is diagnosed with a terminal illness or meets other qualifying conditions specified in the policy, such as requiring long-term care or suffering from a severe chronic illness. The most common kind is the terminal illness benefit.
Key aspects of the accelerated death benefit include:
Eligibility criteria
The specific conditions under which a policyholder can access the accelerated death benefit vary by policy and insurer but generally include being diagnosed with a terminal illness with a limited life expectancy (for example, 12 months).
Benefit amount
The amount of money available through an accelerated death benefit is usually a percentage of the policy’s face value. There are limits to how much can be accessed in advance, and accessing the benefit typically reduces the death benefit payable to beneficiaries upon the insured’s death.
Impact on death benefit
The amount received as an accelerated death benefit is deducted from the total death benefit amount of the policy. This means beneficiaries will receive a reduced death benefit after the insured’s death.
Tax implications
In Canada, the accelerated death benefit is generally received tax-free, but policyholders should consult with a tax advisor to understand any potential tax implications fully.
Use of funds
There are usually no restrictions on how the accelerated death benefit can be used. Policyholders often use these funds to cover medical expenses, pay for care, settle debts, or improve the quality of their remaining life.
Application process
To access the accelerated death benefit, the policyholder must provide proof of eligibility, such as medical records confirming the terminal illness diagnosis, as required by the insurance company.
Cost and availability
Not all life insurance policies include an accelerated death benefit, and the terms and conditions can vary widely. Some insurers offer this feature at no additional cost, while others may charge a fee or require a separate rider.