Frequently Asked Questions
Who is eligible for the Accelerated Death Benefits for Terminally or Chronically Ill?
Taxpayer must be certified as terminally ill (death expected within 24 months) or chronically ill by a licensed health care practitioner.
How does the Accelerated Death Benefits for Terminally or Chronically Ill work?
Amounts received under a life insurance contract or via a viatical settlement by a terminally or chronically ill individual are treated as paid by reason of death and excluded from gross income.
What law authorizes the Accelerated Death Benefits for Terminally or Chronically Ill?
The Accelerated Death Benefits for Terminally or Chronically Ill is authorized under IRC §101(g) of the Internal Revenue Code (Title 26, United States Code).
Statutory Text — IRC §101
Source: Internal Revenue Code, Title 26, United States Code
§ 101. Certain death benefits(a) Proceeds of life insurance contracts payable by reason of death(1) General ruleExcept as otherwise provided in paragraphs (2) and (3), subsection (d), subsection (f), and subsection (j), gross income does not include amounts received (whether in a single sum or otherwise) under a life insurance contract, if such amounts are paid by reason of the death of the insured.
(2) Transfer for valuable considerationIn the case of a transfer for a valuable consideration, by assignment or otherwise, of a life insurance contract or any interest therein, the amount excluded from gross income by paragraph (1) shall not exceed an amount equal to the sum of the actual value of such consideration and the premiums and other amounts subsequently paid by the transferee. The preceding sentence shall not apply in the case of such a transfer—(A) if such contract or interest therein has a basis for determining gain or loss in the hands of a transferee determined in whole or in part by reference to such basis of such contract or interest therein in the hands of the transferor, or
(B) if such transfer is to the insured, to a partner of the insured, to a partnership in which the insured is a partner, or to a corporation in which the insured is a shareholder or officer.
The term “other amounts” in the first sentence of this paragraph includes interest paid or accrued by the transferee on indebtedness with respect to such contract or any interest therein if such interest paid or accrued is not allowable as a deduction by reason of section 264(a)(4).
(3) Exception to valuable consideration rules for commercial transfers(A) In generalThe second sentence of paragraph (2) shall not apply in the case of a transfer of a life insurance contract, or any interest therein, which is a reportable policy sale.
(B) Reportable policy saleFor purposes of this paragraph, the term “reportable policy sale” means the acquisition of an interest in a life insurance contract, directly or indirectly, if the acquirer has no substantial family, business, or financial relationship with the insured apart from the acquirer’s interest in such life insurance contract. For purposes of the preceding sentence, the term “indirectly” applies to the acquisition of an interest in a partnership, trust, or other entity that holds an interest in the life insurance contract.
[(b) Repealed. Pub. L. 104–188, title I, § 1402(a), Aug. 20, 1996, 110 Stat. 1789]
(c) InterestIf any amount excluded from gross income by subsection (a) is held under an agreement to pay interest thereon, the interest payments shall be included in gross income.
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