Wednesday, November 08, 2017

LifeAid: An Accelerated Benefits story

Back in the 80's and early 90's, when the AIDS "epidemic" was just taking off, a lot of folks - especially singles and the elderly - began looking for ways to leverage their life insurance policies. For those with no dependents, keeping a policy in force made little sense, and by selling their plans they could raise quick cash to pay for alternative treatments, or even just take a cruise.

Unfortunately, this lead to a lot of questionable practices, and even more questionable tax implications.  And so, as part of HIPAA, a new word entered the popular lexicon: viatical. Basically, one can sell one's plan to a 3rd party with little (or no) tax consequence.

Naturally, insurance companies weren't too keen on any of this, but the cat was already out of the metaphorical bag. Eventually, the industry settled on  the old "if you can't beat 'em, join 'em" strategy, and thus was born the Accelerated Benefit Rider. These enable the policyholder to "access" the face amount as a living benefit. Naturally, there are some caveats and potential tax implications, but it's a reasonably effective answer to the viatical issue.

Illinois Mutual has provided a helpful primer on how they work:

Thanks, IM!
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