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A major provision in the recently enacted health insurance bill represents a landmark development that will benefit millions of Americans with chronic and life-threatening illnesses. The "Health Insurance Portability and Accountability Act of 1996" allows individuals with cancer, heart disease, Alzheimer's disease, and other chronic and life-threatening illnesses to now receive the proceeds of "living benefits," such as viatical settlements--the sale or exchange of a life insurance policy--free of any Federal income tax.

The "living benefits" provision, which was championed by Representative Jim Bunning, Republican of Kentucky, will benefit two large groups of Americans--1) those diagnosed as having a life-threatening illness, such as cancer, heart disease, AIDS, Alzheimer's Disease, or Lou Gehrig's Disease; and 2) those with certain chronic illnesses, many of whom are elderly. Approximately 2 million Americans are diagnosed with a life-threatening illness each year. Many more suffer from severe chronic illnesses.

Specifically, the legislation allows the proceeds from "living benefits" to be tax-free for individuals who are terminally ill--defined as having been certified by a physician to be suffering from an illness likely to result in death within 24 months of certification--and who are "chronically ill," defined generally in the bill as being permanently and severely disabled by an illness. Most Americans with life-threatening and chronic illnesses are activating "living benefits" through a viatical settlement, which is the sale or exchange of a life insurance policy. Viatical settlement companies pay out a percentage of the policy's face value to the policyholder, assume responsibility for premium payments, and become the policy's beneficiary.

Until now, money received from viatical settlements and other such benefits have been subject to Federal income tax. Several states, such as California and New York, have already made such funds free of state income taxes. Many experts predict this new provision will encourage many individuals to also modify their estate plans to now take advantage of the tax-free status of viatical settlements.

The viatical settlement industry has grown rapidly during the past few years, due to increasing demand for the new financial service and widespread awareness of its value among medical professionals, social workers, employee benefits professionals and others. *

Source: Viaticus, Inc., a viatical settlement company owned by CNA Financial Corporation.

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