Understand that differs from the life insurance carried by a healthy person. Should the healthy person remain so for his/her lifetime, the beneficiaries would receive the proceeds only after the insured dies.

The payments, as one might expect, made while the insured is living are deducted from any death benefits paid to beneficiaries. For example, if an insured had a $200,000 policy and had a life threatening illness the individual would qualify to start receiving money from the policy. If the insured used $100,000 of the $200,000, the beneficiaries would receive the $100,000 remaining balance.

The accelerated death benefit are almost always tax free meaning they are not reportable on the individual’s tax return. However, if the policy is sold to a company that purchases such policies, commonly called a viatical company, some or all of the proceeds may be taxable.

The IRS has a per diem limit on the actual costs for long term care making any excess taxable to the recipient. Since each situation is different, it is wise to consult with competent tax professionals before engaging a viatical company. This isn’t saying you will always run into tax problems, it is saying it is wise to have information in hand that is reliable before selling any life insurance policy.