Critical Illness Insurance Living Benefits Center
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U. S. Taxation of Critical Illness
Insurance
According to the proposed regulations issued by the Internal Revenue Service late in 1992:
They are applicable to all policies issued after June 30, 1993.
Proposed regulations become effective upon publication in the Federal Register [as of 12/31/93 they had not been published].
Proposed regulations address both accelerated mortality benefits and accelerated morbidity benefits.
Qualified accelerated mortality benefits will be treated the same as if they were paid by the reason of death and would be received tax-free.
Qualified accelerated morbidity benefits (i.e., Critical Illness benefits) will also be received tax-free if they meet the following requirements:
The benefits are paid solely upon the occurrence of a morbidity risk;
The charges for the morbidity benefits are separately stated and currently imposed by the insurer;
The charges for the morbidity benefits are not treated by the insurer as life insurance premiums for purposes of determining whether the contact qualifies as life insurance for tax purposes.
Critical Illness benefits are received tax-free by the insured in all other countries.