I
103D CONGRESS
2D SESSION
H. R. 4168
To amend the Internal Revenue Code of 1986 with respect to the treatment
of accelerated death benefits under life insurance contracts.
IN THE HOUSE OF REPRESENTATIVES
APRIL 12, 1994
Mr. FRANK of Massachusetts introduced the following bill; which was referred
to the Committee on Ways and Means
A BILL
To amend the Internal Revenue Code of 1986 with respect
to the 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 PAYMENTS UNDER LIFE
INSURANCE CONTRACTS FOR TERMINALLY
ILL INDIVIDUALS.
(a) TREATMENT AS INSURANCE.—
(1) GENERAL RULE.—Section 101 of the Inter-
nal 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 RE-
SPECT TO TERMINALLY ILL INDIVIDUALS OR INDIVID-
UALS WITH DREAD DISEASE.—
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, any amount paid or advanced to an individual
under a life insurance contract on the life of an in-
sured 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 pur-
poses of this subsection, the term ‘terminally ill indi-
vidual’ means an individual who has been certified
by a licensed physician as having an illness or phys-
ical condition which can reasonably be expected to
result in death in 24 months or less.
‘‘(3) DREAD
DISEASE.—For purposes of this
subsection, the term ‘dread disease’ means a medical
condition which has required or requires extraor-
dinary medical intervention without which the in-
sured 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 de-
scribed in paragraph (1). The preceding sen-
tence shall not apply to amounts for payment of
cash surrender values, loans, or other benefits
made by an insurer in accordance with the pol-
icy provisions.
‘‘(B) QUALIFIED ACCELERATED BENEFITS
CORPORATION.—The term ‘qualified accelerated
benefits corporation’ means a corporation—
‘‘(i) with respect to which the aggre-
gate amount of money or other property
received in exchange for equity in the cor-
poration, 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 in-
surance 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 en-
acted (or qualifying administrative regula-
tions have been promulgated) to govern ac-
tivities described in clause (ii), and
‘‘(II) the business practices of which
in States in which no qualifying legislation
has been enacted (and no qualifying ad-
ministrative regulations have been promul-
gated) do not materially differ from its
business practices in States in which such
legislation has been enacted (or such regu-
lations 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 legis-
lature which, either along or in conjunction
with 
qualifying 
administrative 
regula-
tions—
‘‘(I) imposes obligations on com-
panies regularly engaged in purchas-
ing or taking assignments of life in-
surance contracts on the lives of in-
sured who are terminally ill individ-
uals or who have dread diseases with
respect to confidentiality of medical
information, disclosure of alternatives
to accelerated benefits contracts, dis-
closure of tax consequences of acceler-
ated benefits contracts, and full dis-
closure to the terminally ill individual
or individual with a dread disease of
all material terms of the accelerated
benefits contract and the life insur-
ance policy, and
‘‘(II) in order to enforce obliga-
tions described in subclause (I), au-
thorizes the examination of business
records and affairs of qualified accel-
erated benefits corporations, estab-
lishes procedures for investigations
and for cease and desist and other or-
ders, and imposes penalties for non-
compliance; and