I
104TH CONGRESS
1ST SESSION
H. R. 99
To amend the Internal Revenue Code of 1986 to provide for the tax treatment
of accelerated death benefits under life insurance contracts.
IN THE HOUSE OF REPRESENTATIVES
JANUARY 4, 1995
Mrs. KENNELLY (for herself, Mr. FRANK of Massachusetts, Mr. RANGEL, Mr.
MCDERMOTT, Mr. CARDIN, Mr. GOSS, Mr. JEFFERSON, Mr. DEUTSCH,
Ms. NORTON, Mr. SERRANO, Mr. OWENS, Mr. FALEOMAVAEGA, Mrs.
LOWEY, Mr. MILLER of California, Mr. SMITH of New Jersey, and Mr.
STUDDS) introduced the following bill; which was referred to the Commit-
tee on Ways and Means
A BILL
To amend the Internal Revenue Code of 1986 to provide
for the tax treatment of accelerated death benefits under
life insurance contracts.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. TAX TREATMENT OF ACCELERATED DEATH
BENEFITS UNDER LIFE INSURANCE CON-
TRACTS.
(a) GENERAL RULE.—Section 101 of the Internal
Revenue Code of 1986 (relating to certain death benefits)
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is amended by adding at the end the following new sub-
section:
‘‘(g) TREATMENT
OF
CERTAIN
ACCELERATED
DEATH BENEFITS.—
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, any amount received under a life insurance
contract on the life of an insured who is a terminally
ill individual shall be treated as an amount paid by
reason of the death of such insured.
‘‘(2) NECESSARY CONDITIONS.—
‘‘(A) IN
GENERAL.—Paragraph (1) shall
not apply to any amount received unless—
‘‘(i) the total amount received is not
less than the present value (determined
under subparagraph (B)) of the reduction
in the death benefit otherwise payable in
the event of the death of the insured, and
‘‘(ii) the percentage reduction in the
cash surrender value of the contract by
reason of the distribution does not exceed
the percentage reduction in the death ben-
efit payable under the contract by reason
of such distribution.
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‘‘(B) PRESENT VALUE.—The present value
of the reduction in the death benefit shall be
determined by—
‘‘(i) using a discount rate which is
based on an interest rate which does not
exceed the highest interest rate set forth in
subparagraph (C), and
‘‘(ii) assuming that the death benefit
(or the portion thereof) would have been
paid on the date which is 12 months after
the date of the certification referred to in
paragraph (3).
‘‘(C) RATES.—The interest rates set forth
in this subparagraph are the following:
‘‘(i) the 90-day Treasury bill yield,
‘‘(ii) the rate described as Moody’s
Corporate Bond Yield Average-Monthly
Average 
Corporates 
as 
published 
by
Moody’s Investors Service, Inc., or any
successor thereto, for the calendar month
ending 2 months before the date on which
the rate is determined, and
‘‘(iii) the rate used to compute the
cash surrender values under the contract
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during the applicable period plus 1 percent
per annum.
‘‘(D) 
SPECIAL
RULES
RELATING
TO
LIENS.—If a lien is imposed against a life in-
surance contract with respect to any amount re-
ferred to in paragraph (1)—
‘‘(i) for purposes of subparagraph (A),
the amount of such lien shall be treated as
a reduction (at the time of receipt) in the
death benefit or cash surrender value to
the extent that such benefit or value, as
the case may be, is (or may become) sub-
ject to the lien, and
‘‘(ii) paragraph (1) shall not apply to
the amount received unless any rate of in-
terest with respect to any amount in con-
nection with which such lien is imposed
does not exceed the highest rate set forth
in subparagraph (C).
‘‘(3) TERMINALLY ILL INDIVIDUAL.—For pur-
poses of this subsection, the term ‘terminally ill indi-
vidual’ means an individual who the insurer has de-
termined, after receipt of an acceptable certification
by a licensed physician, has an illness or physical
condition which can reasonably be expected to result