I heard that if you have been diagnosed with a terminal illness, you may be able to tap some of your life insurance death benefits in advance. Is that true?
Yes, in some cases. Many life insurance policies offer “accelerated death benefits,” which allow policyholders who have been diagnosed with a terminal illness to access a portion of the policy’s death benefit while they are still alive. These benefits may be available for both term life insurance policies, which last for a certain number of years but have no cash value, and permanent life insurance policies (such as whole life), which remain in force for as long as you pay the premiums and build cash value that you can withdraw or borrow against. In the case of a permanent life insurance policy, your accelerated death benefit may be more than the amount of cash you could withdraw or borrow under other circumstances. Regardless of whether you have a term or permanent life insurance policy, the money you receive early is subtracted from the death benefit your heirs will receive when you die.
Details vary by company, type of policy and state. If you have a whole life policy from Northwestern Mutual, for example, you can generally withdraw up to half of the death benefit, with a $250,000 maximum, if you have medical proof that you have six months or less to live. You can also access the death benefits early if you have a term policy as long as the conversion period has not expired. (For example, some term policies let you convert to a whole life policy until you reach age 50 or within the first ten years of the term.)
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
New York Life policyholders can generally access 25% to 100% of their death benefits, up to $250,000, if they have medical evidence that they are expected to die within a year.
For information about other ways to access your life insurance cash values, without a terminal diagnosis, see A New Lease on Life Insurance.
-
Fired Up By the Masters and RBC Heritage? See These Homes for Sale By Golf CoursesFive homes for sale near golf courses, for people who can't get enough of the tour.
-
The Economic Impact of the US-China Trade WarThe Letter The US-China trade war will impact US consumers and business. The decoupling process could be messy.
-
Credit Report Error? They All Mattercredit & debt Don't dismiss a minor error. It could be the sign of something more serious.
-
Insurance for a Learning Driverinsurance Adding a teen driver to your plan will raise premiums, but there are things you can do to help reduce them.
-
529 Plans Aren’t Just for Kids529 Plans You don’t have to be college-age to use the money tax-free, but there are stipulations.
-
When to Transfer Ownership of a Custodial Accountsavings Before your child turns 18, you should check with your broker about the account's age of majority and termination.
-
Borrowers Get More Time to Repay 401(k) Loans
retirement If you leave your job while you have an outstanding 401(k) loan, Uncle Sam now gives you extra time to repay it -- thanks to the new tax law.
-
When It Pays to Buy Travel Insurance
Travel Investing in travel insurance can help recover some costs when your vacation gets ruined by a natural disaster, medical emergency or other catastrophe.
-
What Travel Insurance Covers When Planes Are Grounded
Travel Your travel insurance might help with some costs if your trip was delayed because of the recent grounding of Boeing 737 Max planes.
-
Ways to Spend Your Flexible Spending Account Money by March 15 Deadline
spending Many workers will be hitting the drugstore in the next few days to use up leftover flexible spending account money from 2018 so they don’t lose it.
