Do I have to pay tax on accelerated death benefits and
viatical settlements?
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| Often the terminally ill need money to pay for medical expenses and living costs. Due
to the high cost of medical care many insurance companies have issued policies with
accelerated death benefits. Accelerated death benefits are monies paid to the terminally
ill for surrendering their policies to their life insurance companies. A policy can
also be sold to a viatical settlement company. Viatical settlement companies purchase the
policies either for themselves or for investors.
The
accelerated death benefit or viatical settlement proceeds received by the terminally ill are generally tax
free so you do not report them on your tax return. However, if the
policy is sold to a viatical settlement company or the accelerated death benefits are paid
by an insurance company under a long term care rider, and the
accelerated death benefits are used to pay for
long term care, and the proceeds exceed the IRS per diem limit and the actual costs of long
term care, the excess is taxable on your tax return.
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| Related tax
information about accelerated death benefits and viatical
settlements |
Tax Directory Topics:
Long Term Care Costs
Interest on Life Insurance
Dividends on Life Insurance
Life Insurance Proceeds
Income Related Questions and Answers |
IRS publications about accelerated death benefits and viatical
settlements:
See IRS Publication 17, Your
Federal Income Tax. Please read this IMPORTANT
Editor's Note regarding navigating IRS publications with Adobe
Acrobat
Reader.
IRS publications can also be ordered by calling 1-800-829-3676. |
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