Final answer:
Accelerated Death Benefits are tax-free if they meet certain criteria set by the IRS, while viatical arrangements are typically taxable as income.
Step-by-step explanation:
Accelerated Death Benefits are tax-free if they meet certain criteria set by the Internal Revenue Service (IRS). In general, if the benefits are paid out due to the insured person being terminally or chronically ill, they are not subject to income tax. Viatical arrangements, on the other hand, are typically taxable as income.
For example, if an individual sells their life insurance policy to a viatical settlement provider, the proceeds from the sale would be considered taxable income. However, if the individual is terminally or chronically ill and the viatical settlement is structured as an Accelerated Death Benefit, the benefits would generally be tax-free.
It's important to note that tax laws can be complex and subject to change. It's advisable to consult a tax professional or reference the latest IRS guidelines for specific circumstances.