Yes — a terminal illness diagnosis doesn’t mean your life insurance is off-limits until death. Depending on your policy, you may be able to access funds now through your policy’s cash value, an accelerated death benefit rider, or by selling the policy outright through a viatical settlement. Each option comes with real trade-offs for your beneficiaries, so it’s worth understanding all three before deciding.
Ways to Access Life Insurance Benefits During a Terminal Illness
There are three main paths to turning your life insurance into usable cash while you’re still alive:
- Borrow against or surrender your policy’s cash value (if you have a policy that built one up)
- Use an accelerated death benefit rider, if your policy includes one
- Sell your policy through a viatical settlement for a lump sum
1. Accessing Your Policy’s Cash Value
If your life insurance policy has built up cash value, you have two ways to use it:
- Borrow against it. You’ll need to repay the loan; if you don’t, the amount owed plus interest is deducted from the death benefit paid to your beneficiary.
- Surrender the policy. You receive a check for the cash value, but you give up your life insurance coverage entirely.
2. Accelerated Death Benefit Rider
Some policies include an accelerated benefits rider, which lets you access a portion of the death benefit if a doctor expects you to live one year or less. You can typically receive up to 25% of the death benefit, subject to a maximum dollar amount, and the insurer pays the remaining balance to your beneficiary after you die. A small administrative charge may apply.
3. Viatical Settlements
A viatical settlement lets you sell your life insurance policy for cash while you’re still alive. The buyer — usually a viatical settlement broker — takes over your premium payments and becomes the policy’s new beneficiary. Payouts are generally around 60% of the policy’s face value, depending on your age and health.
Viatical settlements can provide meaningful cash when you need it most, but they reduce or eliminate the death benefit your dependents would otherwise receive.
Which Option Is Right for You?
Before surrendering a policy, taking a loan, or selling through a viatical settlement, talk with a trusted financial advisor. They can walk you through the tax consequences of each option and how it affects your long-term terminal illness financial planning — including what’s left for the people who depend on your coverage. Rules and payout percentages can also vary by state, so it’s worth confirming the specifics with a licensed advisor in your area, including here in Florida.
FAQ: Life Insurance and Terminal Illness
Can you access life insurance before death?
Yes. Depending on your policy, you can borrow against or surrender its cash value, use an accelerated death benefit rider, or sell the policy through a viatical settlement.
What is an accelerated death benefit rider?
It’s a policy feature that lets you access a portion — typically up to 25% — of your death benefit while still alive, if a doctor expects you to live one year or less.
How much can I get from a viatical settlement?
Viatical settlements generally pay around 60% of the policy’s face value, though the exact amount depends on your age and health.
Does using my life insurance early reduce what my family receives?
Yes, in most cases. Loans, surrenders, accelerated benefits, and viatical settlements all reduce — or in the case of a surrender or sale, eliminate — the death benefit paid to your beneficiaries.
Should I talk to an advisor before accessing my policy early?
Yes. A financial advisor can explain the tax consequences and long-term impact of each option before you decide, since the right choice depends on your specific policy and situation.
Talk to a Licensed Agent
If you or a loved one is facing a terminal illness diagnosis, understanding your life insurance options can make a real financial difference. A licensed agent can review your specific policy and help you weigh the cash value, rider, and viatical settlement options against what matters most for your family.
