SECTION 1. TAX TREATMENT OF PAYMENTS UNDER LIFE INSURANCE CONTRACTS FOR 
              TERMINALLY ILL INDIVIDUALS.

    (a) Treatment As Insurance.--
            (1) General rule.--Section 101 of the Internal Revenue Code 
        of 1986 (relating to certain death benefits) is amended by 
        adding at the end thereof the following new subsection:
    ``(g) Treatment of Amounts Paid With Respect to Terminally Ill 
Individuals or Individuals With Dread Disease.--
            ``(1) In general.--For purposes of this section, any amount 
        paid or advanced to an individual under a life insurance 
        contract on the life of an insured who is a terminally ill 
        individual or who has a dread disease shall be treated as an 
        amount paid by reason of the death of such insured.
            ``(2) Terminally ill individual.--For purposes of this 
        subsection, the term `terminally ill individual' means an 
        individual who has been certified by a licensed physician as 
        having an illness or physical condition which can reasonably be 
        expected to result in death in twenty-four months or less.
            ``(3) Dread disease.--For purposes of this subsection, the 
        term `dread disease' means a medical condition which has 
        required or requires extraordinary medical intervention without 
        which the insured would die, or a medical condition which 
        would, in the absence of extensive or extraordinary medical 
        treatment, result in a drastically limited life span.
            ``(4) Assignment or sale of contract.--For purposes of this 
        subsection--
                    ``(A) In general.--Any amount received by an 
                individual from the sale or assignment to a qualified 
                accelerated benefits corporation of a life insurance 
                contract on the life of an insured who is a terminally 
                ill individual or who has a dread disease shall be 
                treated as an amount described in paragraph (1). The 
                preceding sentence shall not apply to amounts for 
                payment of cash surrender values, loans, or other 
                benefits made by an insurer in accordance with the 
                policy provisions.
                    ``(B) Qualified accelerated benefits corporation.--
                The term `qualified accelerated benefits corporation' 
                means a corporation--
                            ``(i) with respect to which the aggregate 
                        amount of money or other property received in 
                        exchange for equity in the corporation, as 
                        contributions to capital, or as paid-in surplus 
                        is at least $1,000,000.
                            ``(ii) which is regularly engaged in 
                        purchasing or taking assignment of life 
                        insurance contracts on the lives of insureds 
                        who are terminally ill individuals or who have 
                        dread diseases.
                            ``(iii)(I) which does business in a State 
                        in which the insured resides and in which 
                        qualifying legislation has been enacted (or 
                        qualifying administrative regulations have been 
                        promulgated) to govern activities described in 
                        clause (ii), and
                            ``(II) the business practices of which in 
                        States in which no qualifying legislation has 
                        been enacted (and no qualifying administrative 
                        regulations have been promulgated) do not 
                        materially differ from its business practices 
                        in States in which such legislation has been 
                        enacted (or such regulations have been 
                        promulgated); and
                            ``(iv) which pays an amount equal to at 
                        least 60 percent of the face value of the life 
                        insurance as consideration for the sale or 
                        assignment to it of the policy.
                    ``(C) Qualifying legislation.--For purposes of 
                subparagraph (B)(iii)--
                            ``(i) the term `qualifying legislation' 
                        means legislation enacted by a State 
                        legislature which, either along or in 
                        conjunction with qualifying administrative 
                        regulations--
                                    ``(I) imposes obligations on 
                                companies regularly engaged in 
                                purchasing or taking assignments of 
                                life insurance contracts on the lives 
                                of insured who are terminally ill 
                                individuals or who have dread diseases 
                                with respect to confidentiality of 
                                medical information, disclosure of 
                                alternatives to accelerated benefits 
                                contracts, disclosure of tax 
                                consequences of accelerated benefits 
                                contracts, and full disclosure to the 
                                terminally ill individual or individual 
                                with a dread disease of all material 
                                terms of the accelerated benefits 
                                contract and the life insurance policy, 
                                and
                                    ``(II) in order to enforce 
                                obligations described in subclause (I), 
                                authorizes the examination of business 
                                records and affairs of qualified 
                                accelerated benefits corporations, 
                                establishes procedures for 
                                investigations and for cease and desist 
                                and other orders, and imposes penalties 
                                for non-compliance; and
                            ``(ii) the term `qualifying administrative 
                        regulations' means regulations promulgated by a 
                        State agency which, either alone or in 
                        conjunction with the qualifying legislation, 
                        impose obligations on companies regularly 
                        engaged in purchasing or taking assignments of 
                        life insurance contracts on lives of insureds 
                        who are terminally ill individuals or who have 
                        dread diseases in the areas described in clause 
                        (i) and authorize the enforcement of those 
                        obligations in the manner provided in clause 
                        (i).
                    ``(D) Transition rule.--In the case of taxable 
                years beginning before January 1, 1994, a corporation 
                conducting its business substantially in accordance 
                with the qualifying legislation enacted by any State or 
                with qualifying administrative regulations promulgated 
                by any State agency shall be treated as satisfying the 
                requirements of subparagraph (C) regardless of whether 
                the corporation conducts its business in that State.''
            (2) Effective date.--The amendment made by this subsection 
        shall apply to taxable years beginning after December 31, 1989; 
        except that, in the case of amounts received pursuant to a sale 
        or assignment described in section 101(g)(4) of the Internal 
        Revenue Code of 1986 (as added by paragraph (1)), such 
        amendment shall only apply to amounts received after January 1, 
        1994.''
    (b) Tax Treatment Of Companies Issuing Qualified Terminal Illness 
Or Dread Disease Riders.--
            (1) Qualified terminal illness or dread disease rider 
        treated as life insurance.--Section 818 (relating to other 
        definitions and special rules) is amended by adding at the end 
        thereof the following new subsection:
    ``(g) Qualified Terminal Illness Or Dread Disease Rider Treated As 
Life Insurance.--For purposes of this part--
            ``(1) In general.--Any reference to life insurance shall be 
        treated as including a reference to a qualified terminal 
        illness or dread disease rider.
            ``(2) Qualified terminal illness or dread disease rider.--
        For purposes of this subsection, the term `qualified terminal, 
        illness or dread disease rider' means any rider or addendum on, 
        or other provision of, a life insurance contract which provides 
        for payments to an individual upon the insured becoming a 
        terminally ill individual (as defined in section 101(g)(2) or 
        having a dread illness (as defined in section 101(g)(3)).''
            (2) Definitions of life insurance and modified endowment 
        contracts.--For purposes of applying section 7702 or 7702A of 
        the Internal Revenue Code of 1986 to any contract (or 
        determining whether either such section applies to such 
        contract), the issuance of a qualified terminal illness or 
        dread disease rider (as defined in section 818(g)(2) of such 
        Code) with respect to any contract shall not be treated as a 
        modification or material change of such contract.
            (3) Effective date.--The amendments made by this subsection 
        shall apply to taxable years beginning before, on, or after 
        December 31, 1989.
    (c) Applicants Or Recipients Under Public Assistance Programs Not 
To Be Required To Make Election Respecting Accelerated Death Benefits 
Under Life Insurance Policies.--
            (1) In general.--Part A of title XI of the Social Security 
        Act (42 U.S.C. 1301 et seq.) is amended by adding at the end 
        thereof the following new section:

               ``treatment of accelerated death benefits

    ``Sec. 1143. (a) In General.--Notwithstanding any other provision 
of law, no individual who is an applicant for or recipient of aid or 
assistance under a State plan approved under title IV, X, XIV, XVI, or 
XIX, of assistance funded by payments under title V or XX, or of 
benefits under the Supplemental Security Income program established by 
title XVI shall--
            ``(1) be required, as a condition of eligibility for (or of 
        continuing to receive) such aid, assistance, or benefits, to 
        make an election to receive an accelerated death benefit under 
        a policy of life insurance, or
            ``(2) by reason of failure to make such an election, be 
        denied (or suffer a reduction in the amount of) such aid, 
        assistance, or benefits.
    ``(b) Accelerated Death Benefit.--For purposes of this section, the 
term `accelerated death benefit' means any payment made under the terms 
of a life insurance policy, while the insured individual is alive, as a 
result of a recalculation of the insured individual's life 
expectancy.''
            (2) Effective date.--The amendment made by this subsection 
        shall take effect on January 1, 1990.
Amends the Internal Revenue Code to require that payment under a life insurance contract on the life of an insured who is terminally ill or who has a dread disease be treated as a death benefit, making such payment eligible for tax exclusion from gross income. 
Provides that any reference to life insurance shall be treated as referring to a qualified terminal illness or dread disease rider. Provides for the tax treatment of such riders.  Describes such a rider as one which provides for payments to an individual upon the insured's becoming terminally ill or having a dread disease. 
Provides that applicants for or recipients of assistance under the Social Security Act may not be required to elect to receive accelerated death benefits under life insurance policies.
A bill to amend the Internal Revenue Code of 1986 with respect to the treatment of accelerated benefits under life insurance contracts.