SEC. 331. TREATMENT OF ACCELERATED DEATH BENEFITS BY RECIPIENT.
Title[ Title III\Subtitle D Contents
Subtitle D--Treatment of Accelerated Death Benefits
(a) In General.--Section 101 (relating to certain death benefits) is
amended by adding at the end the following new subsection:
``(g) Treatment of Certain Accelerated Death Benefits.--
``(1) In general.--For purposes of this section, the
following amounts shall be treated as an amount paid by reason
of the death of an insured:
``(A) Any amount received under a life insurance
contract on the life of an insured who is a terminally
ill individual.
``(B) Any amount received under a life insurance
contract on the life of an insured who is a chronically
ill individual.
``(2) Treatment of viatical settlements.--
``(A) In general.--If any portion of the death
benefit under a life insurance contract on the life of
an insured described in paragraph (1) is sold or
assigned to a viatical settlement provider, the amount
paid for the sale or assignment of such portion shall be
treated as an amount paid under the life insurance
contract by reason of the death of such insured.
``(B) Viatical settlement provider.--
``(i) In general.--The term `viatical
settlement provider' means any person regularly
engaged in the trade or business of purchasing, or
taking assignments of, life insurance contracts on
the lives of insureds described in paragraph (1)
if--
``(I) such person is licensed for
such purposes (with respect to insureds
described in the same subparagraph of
paragraph (1) as the insured) in the
State in which the insured resides, or
``(II) in the case of an insured who
resides in a State not requiring the
licensing of such persons for such
purposes with respect to such insured,
such person meets the requirements of
clause (ii) or (iii), whichever applies
to such insured.
``(ii) Terminally ill insureds.--A person
meets the requirements of this clause with respect
to an insured who is a terminally ill individual
if such
person--
``(I) meets the requirements of
sections 8 and 9 of the Viatical
Settlements Model Act of the National
Association of Insurance Commissioners,
and
``(II) meets the requirements of the
Model Regulations of the National
Association of Insurance Commissioners
(relating to standards for evaluation of
reasonable payments) in determining
amounts paid by such person in
connection with such purchases or
assignments.
``(iii) Chronically ill insureds.--A person
meets the requirements of this clause with respect
to an insured who is a chronically ill individual
if such
person--
``(I) meets requirements similar to
the requirements referred to in clause
(ii)(I), and
``(II) meets the standards (if any)
of the National Association of Insurance
Commissioners for evaluating the
reasonableness of amounts paid by such
person in connection with such purchases
or assignments with respect to
chronically ill individuals.
``(3) Special rules for chronically ill insureds.--In the
case of an insured who is a chronically ill individual--
``(A) In general.--Paragraphs (1) and (2) shall not
apply to any payment received for any period unless--
``(i) such payment is for costs incurred by
the payee (not compensated for by insurance or
otherwise) for qualified long-term care services
provided for the insured for such period, and
``(ii) the terms of the contract giving rise
to such payment satisfy--
``(I) the requirements of section
7702B(b)(1)(B), and
``(II) the requirements (if any)
applicable under subparagraph (B).
For purposes of the preceding sentence, the rule of
section 7702B(b)(2)(B) shall apply.
``(B) Other requirements.--The requirements
applicable under this subparagraph are--
``(i) those requirements of section 7702B(g)
and section 4980C which the Secretary specifies as
applying to such a purchase, assignment, or other
arrangement,
``(ii) standards adopted by the National
Association of Insurance Commissioners which
specifically apply to chronically ill individuals
(and, if such standards are adopted, the analogous
requirements specified under clause (i) shall
cease to apply), and
``(iii) standards adopted by the State in
which the policyholder resides (and if such
standards are adopted, the analogous requirements
specified under clause (i) and (subject to section
4980C(f)) standards under clause (ii), shall cease
to apply).
``(C) Per diem payments.--A payment shall not fail
to be described in subparagraph (A) by reason of being
made on a per diem or other periodic basis without
regard to the expenses incurred during the period to
which the payment relates.
``(D) Limitation on exclusion for periodic
payments.--
``For limitation on amount of periodic payments which
are
treated as described in paragraph (1), see section
7702B(d).''.
``(4) Definitions.--For purposes of this subsection--
``(A) Terminally ill individual.--The term
`terminally ill individual' means an individual who has
been certified by a physician as having an illness or
physical condition which can reasonably be expected to
result in death in 24 months or less after the date of
the certification.
``(B) Chronically ill individual.--The term
`chronically ill individual' has the meaning given such
term by section 7702B(c)(2); except that such term shall
not include a terminally ill individual.
``(C) Qualified long-term care services.--The term
`qualified long-term care services' has the meaning
given such term by section 7702B(c).
``(D) Physician.--The term `physician' has the
meaning given to such term by section 1861(r)(1) of the
Social Security Act (42 U.S.C. 1395x(r)(1)).
``(5) Exception for business-related policies.--This
subsection shall not apply in the case of any amount paid to any
taxpayer other than the insured if such taxpayer has an
insurable interest with respect to the life of the insured by
reason of the insured being a director, officer, or employee of
the taxpayer or by reason of the insured being financially
interested in any trade or business carried on by the
taxpayer.''.
(b) Effective <<NOTE: 26 USC 101 note.>> Date.--The amendment made
by subsection (a) shall apply to amounts received after December 31,
1996.
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