4 Death benefits from Life insurance policies are usually left behind for your loved ones. However, some plans allow policy holders to access these funds while they're still alive, by taking "accelerated death benefits."

Life insurance is usually straightforward: You buy coverage, pay premiums, and when you die, the beneficiary gets the value of the policy. However, what happens if you run into end-of-life health issues for which death-benefit money could come in handy? Some policies allow plan holders to help offset the costs of chronic or terminal medical conditions, severe disability, or long-term care by dipping into their death benefits.

Generally, 25% to 95% of the death benefit can be accelerated, depending on the terms of the policy and the regulations of the state insurance department.

Life insurance companies and policies have varying requirements for accessing death benefits early. Holders of some policies may draw down their death benefits if they're unable to perform certain basic tasks, known as "activities of daily living," such as; bathing, dressing, eating, maintaining bowel or bladder control, using a toilet without assistance, and transferring themselves to a bed, chair, or wheelchair. Other companies or policies might have different standards, waiting periods, or age restrictions.

Once you qualify for early death benefits, you may make withdrawals under the terms of your policy. However, this will cost you either by paying a premium surcharge or reducing your benefit.

Accessing death benefits early might also have tax implications. These payments are generally excluded from federal income tax when paid to terminally ill or chronically ill policyholders.

Bear in mind that drawing these benefits early reduces the amount left for your beneficiary(ies) and can impact estate taxes and other legacy-planning costs.

To learn more about the pros and cons of taking early death benefits, just give us a call.
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