The tax implications of receiving an early payout from a life insurance policy, often referred to as expedited mortality remuneration, is a frequently inquired topic. As per IRS guidelines, the benefits received through an accelerated death benefit rider or terminal illness rider on term life insurance are typically not considered taxable income.
This ruling applies when the insured individual has been certified by a physician as having an illness that can lead to death within 24 months. The accelerated living benefit rider provides financial relief during times of extreme health adversities and ensures non-taxable funds in most circumstances.
It is highly recommended to consult with a tax professional before making assumptions about whether the receipt of such benefits under a life insurance terminal illness rider or any other form of expedited mortality remuneration is an accelerated death benefit taxable income.