Tax Consequences for Accelerating Benefits?

[inreverse]

I need some clarification, are there tax consequences for accelerating benefits?
103b critical illness, etc

 

[DHK]

Since this is in the annuities forum, there may already be taxation on withdrawals anyway. If you're talking about life insurance, there could be tax issues as well.

Most would probably be offset by medical expenses incurred in the same tax year.

 

[Tahoe Ray]

I need some clarification, are there tax consequences for accelerating benefits?
103b critical illness, etc

Acceleration of benefits on most annuities will relate to surrenders and riders, not taxes. Taxation is typically the same as a withdrawal from a non-accelerated annuity.

The exception would be one that is specifically tax-qualified for LTC expenses (think Forecare, Lincoln, OneAmerica)...those products can offer tax-free benefits for qualified LTC costs.

 

[pfg1]

I had a client accelerate benefits on a life policy and they did not get a 1099. I'm not sure if this is typical across the companies or not.

 

[SammyJ]

I know when you accelerate benenfits on a lviing benefits policy like Transamerica it can wreck havoc on the death benefit . What happens on a life policy were accelerated benefits are based on 1-2 to yrs to death? Do they adjust the death benefit more than what you actually withdraw? So lets say i had $200k policy an was diagnosed with a terminal illness and withdrew $100k. Would my death benefit be $100k if i died in 2 yrs or like $90k due to living 2 yrs and getting the $100k early?

 

[VolAgent]

I know when you accelerate benenfits on a lviing benefits policy like Transamerica it can wreck havoc on the death benefit . What happens on a life policy were accelerated benefits are based on 1-2 to yrs to death? Do they adjust the death benefit more than what you actually withdraw? So lets say i had $200k policy an was diagnosed with a terminal illness and withdrew $100k. Would my death benefit be $100k if i died in 2 yrs or like $90k due to living 2 yrs and getting the $100k early?

What did you expect, accelerating benefits is just that, getting it early. Of course it is going to reduce the death benefit in some fashion.

As to the second part of the question, it depends on the exact policy language. There is always a cost to accelerating benefits. It may be a flat fee, a percentage, what have you. It just depends on exactly what the policy and/or rider says.

 

[alexr525]

Very Interesting.

 

[inreverse]

I apologize, I should have posted this question on the life forum. On a life policy, are there potential tax consequences when the death benefit is accelerated. I understand that there generally are not on the actual death benefit.

 

[VolAgent]

I apologize, I should have posted this question on the life forum. On a life policy, are there potential tax consequences when the death benefit is accelerated. I understand that there generally are not on the actual death benefit.

DHK was spot on. It may count as income, however there should offsetting medical expenses. Obviously every situation is unique, but I would expect it to be a wash or a small portion taxable after accounting for offsetting deductions.

 

[pfg1]

I think different companies treat it differently. I would ask the company you are looking at how they handle it. They may not issue a 1099, or maybe they do. I know they won't give tax advice but they will tell you how THEY see it.