Help Me Understand Actuarial Deductions?

[WinoBlues]

Was not talking taxes at all. I never give a client an opinion in any way when to comes to taxes on accelerated benefits because it can be really complicated. Critical illness benefits are normally taxed the same as death benefit but if it is a permanent policy with cash value that complicate things. Chronic illness is taxed the same as long term care policies which have a limit on daily amounts.. `
Taxes and Life Insurance: Accelerated Death Benefits | ThinkAdvisor

I kinda thought you meant to quote someone else.

 

[Tahoe Ray]

But the change of ownership doesn't create the differences becasue he, as the original owner has the ability to do everything the viatical company will do. If it is profitable for them, it would be just profitable for him to do what they will do.

The person buying the policy practically guarantees a death benefit payout.

That's not the case with the original policy owner.

 

[bill3173]

If anyone here thinks that a viatical company would pay anything close to the CI benefit this client got from his insurer, you would be mistaken.

The payout, if there was one, would probably be around $10k-$15k. This assumption is based on the LE assumption made by the insurer, and predicting what a viatical company would do, which would be much much worse.

First thing they do is factor in the cost of converting and paying for a period that is ridiculously long, and then doubling it and giving him what's left. If you sent this out to three of them, two would pass and one would offer lunch money.

 

[somarco]

Not sure you were referring to my income tax statement or not.

I believe the Accelerated Benefits would be handled same as the Death Benefits.

Accelerated death benefits are typically not taxed as income.

In order to qualify for an accelerated death benefit, a policy owner needs to provide proof that they are chronically or terminally ill.

Taking accelerated death benefits will reduce the amount of money received by beneficiaries.

Accelerated Death Benefit – ADB

 

[pfg1]

My experience with clients that got living benefits payout was they got no 1099 - acceleration of a tax free DB. There is always a cost for these payouts, as described in the previous replies - but how much is determined by future life expectancy. But hey, with most term policies you get ZERO unless you die.

 

[nbrz]

Thanks everyone. It came as a very expensive cost to receive my Living Benefits. I didn't know that to accelerate Living Benefits would be this expensive. Losing 53% was hard to swallow. Since it was a term policy, I decided to accelerated all my Living Benefits and close my policy...Will invest the money and hopefully get a decent return when I retired in 15-20 years.