AboutDave Bowman Expertise I will answer questions of a general nature regarding life insurance, disability income insurance annuities (fixed and variable) and long term care insurance. Also, questions regarding estate analysis. No legal or accounting advice, as I am not a lawyer or a CPA. I do not sell health insurance, so have limited knowledge of the current status of that field.
Experience
Past/Present clients Families, professionals, small businesses, individuals.
Question I have insurance on my wife over $1 million dollars and we found out she was diagnoses with stage 4 cancer last week. In researching the insurance there is a clause to be paid in advance of her death in the case of terminal illness. When we receive the monies will this be taxable? If so then would taking the monies as a rollover would be more beneficial from a tax point of view?
Answer First, let me offer my prayer that the doctors will be confounded and your wife will be healed.
With respect to your question, accelerated death benefits are not subject to income taxes. As estate tax and gift tax exclusions are changing annually under the tax law passed in 2000 and will probably be changed after 2010, I can't say whether some of the proceeds might be subject to estate or inheritance taxes.
The only drawback might be that there will be some interest expense to taking these funds in advance. You can understand that if the insurance company delays paying a death benefit, they would owe you interest. The converse is true, when they pay you in advance, you will owe some interest that will be deducted from the proceeds.
