Policy Riders, Provisions, Options, and Exclusions
A terminally ill insured receives an accelerated death benefit. How does federal tax law generally treat the payment?
Answer and explanation
Answer: D. IRS Publication 525 describes an exclusion for accelerated death benefits where the insured is terminally ill, with a parallel exclusion for chronic illness subject to its own conditions, and notes an exception where the policy was transferred for valuable consideration. The payment is therefore not treated as ordinary income, capital gain, or a partial return of premium.Source: IRS Publication 525 — Publication 525, Accelerated Death Benefits
More policy riders, provisions, options, and exclusions questions
- The insured is not the owner of a cash-value life policy. The insured asks to take a policy loan without the owner's authorization. Which response best reflects the parties' roles?
- The insured's age was misstated on a flexible-premium life application. When discovered, how should the provision generally respond?
- Under standard individual life policy provisions, what is the maximum initial suicide exclusion period permitted under IIPRC compact standards?
- Under the entire contract provision, what elements constitute the legal agreement between the owner and insurer?
- What benefit does a return of premium (ROP) term rider provide if the insured survives to the end of the term?
- What condition must be satisfied before a waiver of premium rider waives the policyowner's premium obligations?
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