[Last updated July 10, 2025]
It can be hard to navigate the complications that come with facing a life-altering illness, especially when paying for long-term care. People in this situation may be able to use their life insurance policies to help pay for senior care through accelerated death benefits and viatical settlements. Here’s what you need to know about paying for senior care using accelerated death benefits and viatical settlements.
What is the difference between accelerated death benefits and a viatical settlement?
For individuals with chronic or terminal illnesses, accelerated death benefits (ADBs) and viatical settlements provide a way to use life insurance benefits during their lifetime. The major difference is whether the insured individual sells their policy or accesses a portion without selling it.
With a viatical settlement, the policyholder — known as a viator in this case — sells their life insurance policy to a third party at a discounted rate. The third party takes over all payment responsibilities and will receive the death benefit when the individual passes away. Per Lighthouse Life, “A viatical settlement can sometimes offer a larger lump sum payment than an accelerated death benefit.” However, the viator’s original beneficiaries may no longer be eligible to receive benefits upon that person’s death.
Accelerated death benefits are riders, or add-on benefits, attached to life insurance policies. ADB riders offer life insurance payments to the insured during their lifetime without requiring the individual to sell their policy. In this situation, policyholders access their life insurance funds in advance payments, lowering the value of their policy’s payout.
Let’s take a closer look at these two options.
What is a viatical settlement?
A viatical settlement is an arrangement for those who are terminally or chronically ill that involves selling their life insurance policy at a discount in exchange for a one-time sum of cash. It’s a contractual agreement between the policyholder (the viator) and the settlement provider that allows the viator to transfer ownership of their life insurance policy in exchange for cash. The payout will be lower than the policy’s total value.
Qualifying for a viatical settlement
To qualify for a viatical settlement, the following criteria typically must be met:
- The seller must be chronically or terminally ill.
- They must be diagnosed by a medical professional with a life-threatening illness and have a life expectancy of 24 months or less or a chronic illness that requires substantial assistance.
- The policy must be worth at least $100,000.
There are no age restrictions for obtaining a viatical settlement, as the main determining factor is health status.
Selling your policy for a viatical settlement
A viatical settlement is an option for those needing funds to help pay for long-term care. Typically, a viatical settlement will yield between 50% and 70% of the total payout of a policy, with higher amounts going to people with shorter life expectancies.
The viator may be able to receive funds (which can be used for anything, including care costs) within a few weeks of the sale. Some policyholders can receive their settlement tax-free, but the viator must meet specific medical requirements for that to be the case.
Once a policy is sold to a third party, the company becomes responsible for paying future premiums on the plan. The third party becomes the sole beneficiary of the plan and is responsible for all payments until the viator dies. At that time, the policy is paid out to the company rather than the insured’s beneficiaries.
What is an accelerated death benefit?
While an accelerated death benefit (ADB) yields some similar benefits, it’s much different from a viatical settlement. An ADB rider is a life insurance policy add-on used to access the funds in a policy’s death benefit before the policyholder has passed. Some policies may have this rider automatically included, but some people must choose to add it, potentially increasing their premiums.
Also known as a terminal illness rider, this option is available only to those diagnosed with a qualifying chronic or terminal illness. It works by deducting the money received from the policyholder’s death benefit.
Because the policy still belongs to the individual, they must continue to pay premiums. Any funds not withdrawn before death are paid out to beneficiaries upon the insured’s passing.
Qualifying for accelerated death benefits
To qualify for accelerated death benefits from a life insurance policy, the policyholder must meet one of the following:
- Prove they have a terminal illness with a life expectancy of under two years.
- Be diagnosed with a chronic illness that is likely to shorten their lifespan, necessitate long-term care, or require an organ transplant.
Each provider’s policy has different requirements regarding what circumstances qualify, so check with your provider for specific qualifications.
Collecting accelerated death benefits
Determining the amount of money you’ll collect through an ADB rider will depend on various circumstances, including the policy option you’re enrolled in. Some policies have the rider built in at the time of purchase; however, others choose to purchase the rider later for an additional cost. A third option is a “no-cost” rider that allows the insurer to discount the dollar amount of benefits awarded to the policyholder. The discounted amount is determined based on a formula that considers interest, mortality rates, and the policy’s cash value.
Generally, the policyholder can expect to access anywhere between 25% and 100% of their death benefit while they are still alive. Some policies will require a minimum payout, and the policyholder may receive payments within a couple of weeks in a lump sum or in installments. The money received from an ADB can be used for any purpose, including funeral costs, senior care expenses, or medical costs.
Tax considerations
Benefits may not be subject to federal taxes if the person has a documented chronic or terminal illness. According to the federal tax code, a person who has been told by a medical professional that they have 24 months or less to live is considered terminally ill.
While funds from ADBs and viatical settlements may not be taxed as income, there are situations in which they are subject to tax. For example, when a person opts to receive funds in installments rather than a lump sum, they may be subject to interest. In addition, those enrolled in group life insurance, those with an estate tax above a certain threshold, and those who withdraw more than they paid into a policy may be taxed.
Navigating serious illness is never easy, but understanding your financial options can make a difference. Both accelerated death benefits and viatical settlements offer ways to access life insurance funds early to help cover the cost of senior care. The right choice depends on your health, financial situation, and goals for your beneficiaries. Whether you choose to retain ownership of your policy through an ADB or sell it through a viatical settlement, it’s important to review your policy carefully and consult with a trusted advisor to make the best decision for your circumstances.
This information is for educational purposes and is not legal, financial, tax, or investment advice. It should not be substituted for information from professionals authorized to practice in your area. You should always consult a suitably qualified professional regarding your specific situation.
