[Congressional Bills 103th Congress]
[From the U.S. Government Publishing Office]
[S. 1689 Introduced in Senate (IS)]
103d CONGRESS
1st Session
S. 1689
To amend the Internal Revenue Code of 1986 with respect to the
treatment of accelerated death benefits under life insurance contracts.
_______________________________________________________________________
IN THE SENATE OF THE UNITED STATES
November 19 (legislative day, November 2), 1993
Mr. Graham (for himself and Mr. Domenici) introduced the following
bill; which was read twice and referred to the Committee on Finance
_______________________________________________________________________
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 Representatives 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 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.
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