By Travis Christy, White Coat Insurance
OK, the title of this post is a bit attention-grabbing, but I had to find a way to pique your interest. Let’s face it, insurance isn’t the most thrilling topic—it usually screams, “Here we go again with another lecture on life or disability insurance!” But bear with me. This is a real-life story about someone close to me who ended up accessing their term life insurance payout without the typical scenario of passing away (and trust me, this person would approve of that headline).
Let me take you back to when things got serious, when (for anonymity purposes I’ll call the person Kate) Kate shared her shocking diagnosis with me in a phone call:
“Hey, what’s up?” I said casually when she called.
Through tears, I heard her say she had some devastating news. “I’ve just been diagnosed with stage 4 cancer!”
“What!” I exclaimed. “How . . . when . . . I don’t understand. How long do you have?”
“There’s still a lot we don’t know, but we hope to figure out more in the coming weeks,” she replied.
I’ve known grief before. I experienced the profound loss of my father at a young age and a baby brother who didn’t make it. While death is something we all face, it’s especially jarring when it strikes unexpectedly early. Kate, just two years younger than me and in her mid-40s, has so much life ahead of her. She’s a mother to four children, most of whom are still in school.
Life has a way of throwing curveballs, and this situation has certainly disrupted her family’s path.
When I asked about her insurance coverage, she mentioned having a small disability policy through work. That would provide more than $1,000 a month for three months. I encouraged her to file the claim right away. Additionally, she had been paying premiums on two term life insurance policies for several years, totaling nearly a half million dollars in death benefits. I asked her to send me the details so I could review the contracts and explore any potential benefits they might offer.
Upon reviewing the policies, I discovered that both included what’s called an Accelerated Death Benefit (ADB). This meant she could potentially access a portion of her life insurance payout while still alive, provided her prognosis indicated a shortened life expectancy—typically 12 months.
Broaching this topic with her was heart-wrenching. I struggled with the idea of discussing the possibility of her passing or filing a claim on her life insurance. It was a tough conversation to entertain, but I knew the financial support could make a significant difference for her family. These funds could cover bills and other expenses, easing the financial strain as they navigated the emotional toll of her illness.
I called her to share the news. I explained that her policies allowed her to access funds early without the need for her passing away. If approved for the benefit, she could choose to receive up to 75% of the death benefit face amount on one policy and up to 50% on the other one. This substantial support could sustain her family for an extended period, with the remaining death benefit still available as long as premiums were paid.
I encouraged her to pursue the benefit and, above all, to fight fiercely to overcome this cancerous monster. I stressed that this could be a blessing for her family—especially considering one of her children has autism, and her youngest child had just turned 12. Qualifying for the accelerated benefit would alleviate a significant worry for Kate and her husband.
This wasn’t just about navigating a difficult conversation; it was about ensuring her family could find stability and support. After much consideration and wrestling with the decision, she and her husband ultimately decided it was wise to proceed with the claims process.
How the Accelerated Death Benefit Works (and Why You Should Make Sure Your Term Life Insurance Policy Has It)
The Accelerated Death Benefit (ADB) is a built-in feature on most life insurance policies at no additional cost. Some policies, however, may have the feature as an inexpensive rider. The ADB allows policyholders to access a portion of their death benefit while still alive under specific conditions. This provision is designed to offer quick cash during critical times, particularly when the policyholder is facing severe health challenges, such as terminal, chronic, or critical illnesses.
For example, a terminal illness can qualify a policyholder for the ADB if a physician certifies that the illness is expected to result in death within a certain period, typically 12 months. In such cases, the policyholder can receive a lump sum payout to help cover medical bills, household expenses, or other financial needs. However, if the illness does not meet these criteria—if, for example, the life expectancy is projected to extend beyond 12 months—the ADB claim may be denied.
The flexibility of the ADB is one of its key advantages. Policyholders can choose to accelerate a portion of the allowed amount of the death benefit or the entire amount. It’s up to them. This ensures that the remaining death benefit can still be available to beneficiaries after the policyholder’s death. For chronic illnesses, policyholders could reapply for benefits annually, allowing for ongoing financial support as needed. This flexibility makes the ADB a good solution for managing the financial strain associated with serious health conditions.
While many ADB riders are marketed as having “no additional cost” or a “minimal cost,” it’s important to understand that if the benefit is paid out, it is deducted from the total life insurance death benefit. When a claim is made, insurance companies use a formula to determine the payout, factoring in things like interest rates; mortality rates; and, for permanent life insurance policies, the policy’s cash value.
The positive news is that if the insured—let’s say Kate in this case—outlives her life expectancy after receiving the ADB payout, there’s no need to worry about the insurance company asking for the benefit to be returned. Once the ADB is triggered and paid out, the benefit is yours to keep, even if you defy the odds and live longer than expected after a diagnosis of terminal or critical illness.
As for taxes, this is what the IRS has to say about exercising an ADB:
“Amounts paid as accelerated death benefits are fully excludable from your income if the insured has been certified by a physician as terminally ill. Accelerated death benefits paid on behalf of individuals who are certified as chronically ill are excludable from income to the same extent they would be if paid under a qualified long-term care insurance contract.”
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Questions About Kate’s Cancer Journey and ADB Claim
To gain deeper insight into her journey, both emotionally and practically, I asked her a series of questions about her experience with cancer and the process of filing the insurance claim.
Kate: I went to the emergency room because I thought I had appendicitis. The pain was intense and localized, and I was convinced that my appendix was the issue. However, when the doctors reviewed my CT scan, they discovered not only my ruptured appendix but also over 20 lesions on my liver.
This unexpected finding led to further investigation, including a liver biopsy. The results were devastating: I was diagnosed with stage 4 colon cancer that had metastasized to my liver. The news was a complete shock, especially since I had none of the common symptoms typically associated with colon cancer. I had been feeling generally well, with no significant changes in my bowel habits or persistent abdominal discomfort.
The diagnosis turned my world upside down, and I had to come to terms with the severity of my condition.
Travis: What has been the hardest part of treatment, and how are you coping?
Kate: I believe I’m coping much better now than when I was first diagnosed. Initially, the news was overwhelming, and it took time for me to come to terms with the reality of living with a chronic and life-threatening illness. My doctor was very upfront about the nature and duration of the treatment, explaining that it would most likely continue for the rest of my life. This has helped me manage my expectations and the likelihood of never being cancer-free.
Physically, the hardest part has been pain management. I accessed palliative care earlier this year and realized that I should have taken advantage of this resource from the beginning. It has been a game changer to help me cope with side effects and stay positive.
Travis: Who or what has been your biggest support during this time?
Kate: My family and friends have been my biggest cheerleaders and supporters. My husband has been great about coming with me to appointments and chauffeuring me to scans, etc. He and our kids have been great to step up around the house when I haven’t been physically able to do much. Our friends supplied us with meals and visits, especially in the beginning when I was very sick and when I have had other setbacks during my treatments. God has also been instrumental in helping me along this journey. I know many prayers have been offered on our behalf, and they have been felt immensely.
Travis: How is your family handling the situation?
Kate: My family has been very supportive. I know it has been difficult on our kids, especially when I have been very sick. My husband always says he’s not going to panic until there is something to panic about. He has been a steady rock through all of this even though I know it has been hard on him.
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Questions About the Life Insurance Claim
Travis: What were your thoughts when you found out about the Accelerated Death Benefit?
Kate: I was right in the beginning of my diagnosis when I first learned about the Accelerated Death Benefit. Honestly, I was the last one on board. It felt like a price was being put on my life, and that is very hard to face.
Travis: How did you decide to go ahead and file the claim?
Kate: Travis advised us to apply for everything we could right away. In addition to the ADB, I also applied for my short-term disability through my employer and Social Security disability, which can take time to be accepted and received. We really did need the financial stability so I could focus on my treatment.
I discussed it with my husband and had a better understanding of how the Accelerated Death Benefit works. We were grateful for how it could provide much-needed financial support during my treatment, helping us so we didn’t have to constantly worry about bills and expenses. It really is designed to ease the financial burden on families facing illnesses like this. I can focus more on my care and less on the monetary side of things.
Filing the claim was a step toward taking control of our situation and planning for the future with a sense of security and peace of mind.
Travis: How was the process of filing the claim? Any unexpected challenges?
Kate: The process of filing the claim was initially quite frustrating. One of the main difficulties was obtaining the correct paperwork. Neither of the insurance companies had the necessary claim forms readily available on their websites, which meant that I had to make several phone calls back and forth to request the forms.
Once we finally received the correct forms, the next hurdle was ensuring we had all the required medical information to support the claim. This is where the support of my oncologist and his nurse was so valuable. They were incredibly helpful and understanding, helping us gather all the necessary medical documents. They made a significant difference, providing the detailed medical records and information required to complete the claim.
After completing the paperwork, the process became much smoother. With the right forms in hand and all the medical information organized, we were able to submit the claim more efficiently. The support from my healthcare team was so important in this journey, and their promptness helped alleviate some of the stress.
Travis: How did the insurance company handle your claim?
Kate: The insurance company took a few weeks to review my claim. I was able to follow up with both companies to get an idea of the timeline for decisions. I received approval for both accelerated benefits, and the transfer of funds happened quickly. It was a huge relief, as it eased our financial worries and allowed us to shift our focus more fully onto my treatment and well-being.
Travis: How has receiving the benefit helped your family financially?
Kate: Receiving the benefit has been extremely valuable, especially when I became unable to work earlier this year and am unsure when I will be able to return to the workforce. The financial support provided by the benefit has allowed us to bridge the gap left by my lost income. We have been able to set aside enough from the benefit to cover my earnings for the next few years. This has allowed us to prioritize my cancer fight by eliminating the stress of finances.
We have used the benefits to pay for medical bills not covered by insurance and to meet our out-of-pocket maximum as well as added costs for the extra transportation we have had.
Travis: What advice would you give to others considering buying life insurance and looking at the Accelerated Death Benefit?
Kate: The Accelerated Death Benefit has been a blessing to our family. I think any couple looking into the financial future should consider term life insurance with this rider, even for the partner who isn’t the primary earner.
As of this writing, Kate is doing well, and she has the opportunity to participate in experimental treatments. She’s still battling her cancer, and she recently received news her tumors aren’t getting any bigger, which is great news. I’d like to thank her for the opportunity to interview her and participate in this post.
Obtaining quality disability insurance is a must for any physician, so you can be sure to protect your hard-earned income. Get a quote from one of our recommended insurance agents and cross this task off your to-do list today!
Do you know anyone who’s used the ADB rider for their term life insurance? Was it helpful? Did they get pushback from the insurance company? Comment below!
