By John R. Bullis

Most life insurance policies pay the death benefit after someone dies.  But what if Joe is terminally ill-he has a illness that is certified by a physician that will result in his death in less than 24 months?

In that case, since many life insurance policies offer “accelerated death benefits” that special provision may be important to provide tax free income to pay current expenses.

If the life insurance policy has “accelerated death benefits” provisions, the policy can pay a part of the death benefit while the owner of the policy is still alive.  That can be a big help in paying for the living expenses, medical costs, etc. before Joe dies.

This provision may be available in both term life insurance and permanent (whole life) insurance policies.  The money received early (before death) is just subtracted from the basic death benefit and the balance is paid after death.  The details vary by insurance company and the type of policy.  It is good to look at the policy in detail.

I’ve found reading the policy (or any legal document) out loud, even if I am the only person in the room, helps me quickly understand what it says.

The early payments are not subject to income tax, just as the basic death benefit is not subject to income tax.  That means all of the accelerated benefit is available for the payment of the various expenses.

Kelly was Trustee of a trust where the individual covered by a life insurance policy was deemed terminal by his doctor.  The individual wanted Kelly to be sure the benefits before and after death were made available to his wife and children.  It all worked out well and the individual’s goals and desires were met.  The main benefit was getting part of the death benefit, tax free, before the death.

If you know of someone that has a life insurance policy and that person has (or can be) determined to have an illness that will result in their death in less than 24 months, maybe it would be good to look at the policy in detail.  It is OK to contact the life insurance company involved to verify the “accelerated death benefit” provision is fully understood.

This is one item Congress did correctly.  The advance, tax free benefits can be a real help!

Did you hear “The more I listen to other, the more sense they begin to make”.  —Thad Russell