An individual has been diagnosed with Alzheimer's disease. He is insured under a life insurance policy with the accelerated benefits rider. Which of the following is true regarding taxation of the accelerated benefits? a) A portion of the benefit up to a limit is tax free; the rest is taxable income. b) Principal is tax free, but interest is taxed. c) The entire benefit will be received tax free. d) The entire living benefit is considered taxable income.

Question

Odin Schneider

Business

17 July, 09:31

An individual has been diagnosed with Alzheimer's disease. He is insured under a life insurance policy with the accelerated benefits rider. Which of the following is true regarding taxation of the accelerated benefits? a) A portion of the benefit up to a limit is tax free; the rest is taxable income. b) Principal is tax free, but interest is taxed. c) The entire benefit will be received tax free. d) The entire living benefit is considered taxable income.

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Belen Armstrong · Answer 1

A portion of the benefit up to a limit is tax free, the rest is taxable income the following is true regarding taxation of the accelerated benefits.

a) A portion of the benefit up to a limit is tax free; the rest is taxable income.

Explanation:

When a person is given insurance for a chronical disease the amount is tax free upto a certain limit but as soon as the amount exceeds the taxable limit it will be considered under the individual's gross income.

The amount received in excess of the tax free limit will be taxable and has to be paid by the insured. Here also the individual diagnosed with Alzheimer's is medically insured but will have to pay the taxes on the amount exceeding the limit.