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Smartlink Group Group

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Thomas White
Thomas White

Advance Death Benefit ((EXCLUSIVE))


A: Accelerated benefits, also known as "living benefits," are life insurance policy proceeds paid to the policyholder before he or she dies. The benefits may be provided in the policies themselves, but more often they are added by riders or attachments to new or existing policies.




advance death benefit



A: The accelerated benefits option or rider in a life insurance policy provides that all -- or a portion of -- the policy's proceeds will be paid to the insured upon the occurrence of specified events. These include such things as the diagnosis of a terminal illness, the need for long-term care or the onset of a medically incapacitating condition. The life insurance company will deduct the accelerated benefits payment from the death benefit it ultimately pays to the beneficiary.


A: Some insurers add accelerated benefits to life insurance policies for a small additional premium, usually computed as a percentage of the base premium. A growing number of companies, however, offer these benefits at no additional premium, but charge the policyholder for the option only if and when it is used. In most cases, the company will reduce the benefits advanced to the policyholder before death to compensate it for the interest it will lose on its early payout. In addition, there may also be a nominal service charge.


A: These options are usually added to universal life insurance policies or other permanent life insurance policies. Some insurers are beginning to offer them with term life insurance policies sold to individuals. Accelerated benefits may also be available through group term or group permanent life insurance policies. Accelerated benefit options are usually offered when you purchase a new life insurance policy, but many insurers will also add them to existing policies.


A: Currently, more than 150 companies offer some type of accelerated benefits. In addition, other companies have indicated that they are developing such plans or are considering them. More than 3 million Americans are now protected by accelerated benefits.


A: Companies offer anywhere from 25 to 100 percent of the death benefit as early payment. The amount varies from policy to policy. For those policies where accelerated benefits are added to the policy with no additional premium, the insurer will reduce the early payment to the policy holder so it is compensated for the interest it will lose on the early payout. Sometimes, payments are made in monthly installments, at other times in a lump sum. Some policies allow the policyholder to choose the method of payment. Each policy or rider specifies the method available.


A: State insurance departments regulate accelerated benefits, as they do all insurance products. All 50 state insurance departments and the District of Columbia have approved the sale of some form of accelerated benefits. The National Association of Insurance Commissioners, an association of state regulators, has developed model regulations covering the sale of these benefits. The model regulations specify a number of qualifying conditions that may be used to trigger the payment of accelerated benefits. The model regulations also limit the interest charges some insurers deduct from the accelerated benefits to compensate the insurer for its early payout.


A: A representative list of insurers that offer accelerated benefits is available from the National Insurance Consumer Helpline, 800-942-4242. Although more than 150 companies offer some form of accelerated benefits, not all plans are approved in all states. NICH cannot tell you if a particular plan is approved in any given state. For more information, check with your professional insurance producer or the Alabama Department of Insurance.


A: Some terminally ill people have made what is known as a "viatical settlement" of their life insurance policy -- an arrangement that should not be confused with accelerated benefits. In a viatical settlement, a company buys the terminally ill policyholder's life insurance policy, paying the policyholder 55 to 80 percent, typically, of the death benefit. The viatical company becomes the policy's beneficiary, and receives the full death benefit when the insured person dies.


Viatical settlement companies are not affiliated with or sanctioned by the life insurance industry. A few state insurance departments regulate viatical settlement companies, so you may want to consider contacting the Alabama Department of Insurance for further information. Also, contact your producer to find out if an accelerated benefit or policy loan is available to you as an alternative to a viatical settlement.


You can receive income in the form of money, property, or services. This publication discusses many kinds of income and explains whether they are taxable or nontaxable. It includes discussions on employee wages and fringe benefits, and income from bartering, partnerships, S corporations, and royalties. It also includes information on disability pensions, life insurance proceeds, and welfare and other public assistance benefits. Check the index for the location of a specific subject.


In most cases, you must include in gross income everything you receive in payment for personal services. In addition to wages, salaries, commissions, fees, and tips, this includes other forms of compensation such as fringe benefits and stock options.


If you receive advance commissions or other amounts for services to be performed in the future and you're a cash-method taxpayer, you must include these amounts in your income in the year you receive them.


Pay you receive from your employer while you're sick or injured is part of your salary or wages. In addition, you must include in your income sick pay benefits received from any of the following payers.


Your employer or another person for whom you perform services is the provider of a fringe benefit regardless of whether that person actually provides the fringe benefit to you. The provider can be a client or customer of an independent contractor.


You must use the same accounting period your employer uses to report your taxable noncash fringe benefits. Your employer has the option to report taxable noncash fringe benefits by using either of the following rules.


The special accounting period rule: benefits provided during the last 2 months of the calendar year (or any shorter period) are treated as paid during the following calendar year. For example, each year your employer reports the value of benefits provided during the last 2 months of the prior year and the first 10 months of the current year.


Your employer must include all taxable fringe benefits in box 1 of Form W-2 as wages, tips, and other compensation, and, if applicable, in boxes 3 and 5 as social security and Medicare wages. Although not required, your employer may include the total value of fringe benefits in box 14 (or on a separate statement). However, if your employer provided you with a vehicle and included 100% of its annual lease value in your income, the employer must separately report this value to you in box 14 (or on a separate statement).


If your group-term life insurance policy includes permanent benefits, such as a paid-up or cash surrender value, you must include in your income, as wages, the cost of the permanent benefits minus the amount you pay for them. Your employer should be able to tell you the amount to include in your income.


If a fringe benefit is included in your income, the amount included is generally its value determined under the general valuation rule or under the special valuation rules. For an exception, see Employer-Provided Group-Term Life Insurance, earlier.


Generally, you can use a special valuation rule for a fringe benefit only if your employer uses the rule. If your employer uses a special valuation rule, you can't use a different special rule to value that benefit. You can always use the general valuation rule discussed earlier, based on facts and circumstances, even if your employer uses a special rule.


If you inherit property not substantially vested at the time of the decedent's death, any income you receive from the property is considered income in respect of a decedent and is taxed according to the rules for restricted property received for services. For information about income in respect of a decedent, see Pub. 559.


Payments you receive as a member of a military service are generally taxed as wages except for retirement pay, which is taxed as a pension. Allowances generally aren't taxed. For more information on the tax treatment of military allowances and benefits, see Pub. 3.


In most cases, if you're covered by an accident or health insurance plan through a cafeteria plan, and the amount of the insurance premiums wasn't included in your income, you aren't considered to have paid the premiums and you must include any benefits you receive in your income. If the amount of the premiums was included in your income, you're considered to have paid the premiums and any benefits you receive aren't taxable.


If you retire from the U.S. Armed Forces based on years of service and are later given a retroactive service-connected disability rating by the VA, your retirement pay for the retroactive period is excluded from income up to the amount of VA disability benefits you would have been entitled to receive. You can claim a refund of any tax paid on the excludable amount (subject to the statute of limitations) by filing an amended return on Form 1040-X for each previous year during the retroactive period. You must include with each Form 1040-X a copy of the official VA determination letter granting the retroactive benefit. The letter must show the amount withheld and the effective date of the benefit.


Provide that refunds, other than refunds on the death of the insured or complete surrender or cancellation of the contract, and dividends under the contract may be used only to reduce future premiums or increase future benefits; and


The exclusion for payments made on a per diem or other periodic basis under a long-term care insurance contract is subject to a limit. The limit applies to the total of these payments and any accelerated death benefits made on a per diem or other periodic basis under a life insurance contract because the insured is chronically ill. (For more information on accelerated death benefits, see Life Insurance Proceeds under Miscellaneous Income, later.) 041b061a72


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