Should We Tax The Rich ?
Sanjiv Gupta CPA - 8 years ago
During the campaign period, Obama and Romney were at each others’ throats over the taxation of the rich. The basis of this problem seems to have arisen from the Obamacare program, which sought to make the rich pay a little more in order to cover some of the costs of medical care for the less privileged in the society. On one hand, the Obama administration hailed this as a way in which every person can be given access to a good health care system. On the other hand, Romney, who is considered to be rich by most standards, held that the system was designed to punish those who were rich. From this simple example, you can begin to understand just why the topic of taxation among the rich is an important part of the whole scheme of things.A simple look at the start of all these problems shows that the rich are up in arms against any system that will reduce their spending abilities. However, faced with a government that seeks to ensure that they play their part in rebuilding the country, it becomes a very sore topic. Therein lays the root of the problem. The question is very simple, should the rich pay more taxes as a result of their success in business. On one hand, Obama wants to keep the taxes on the middle-income class while increasing the tax threshold on the higher income citizens. Romney and in effect the Republicans, want to keep the taxes on the middle-income earners low while sticking to the tax plan of the top 5% income earners. Now that the Republicans lost during the elections, it means that Americans want the rich to pay a little more and they agree with the democrats in terms of the tax plan that they came up with.Even then, the different houses are controlled by the different parties and since their approval is required, it can only wait to be seen how far each will go to implement their policies. So let us look at the logic behind each of the schools of thought. The rich tend to make more money off the common citizens. This, in essence, means that they owe it to everyone to contribute more towards the development of the social and economic fabric of the regions in which they operate. On the other hand, it is the rich who have the disposable income to actually make large scale investments and therefore affect the lives of the different people. With this in mind, it might be in the best interests of the general public to actually tax the rich at the current rate. This will allow them to have more disposable income that they can spend and re-activate the economy. Even then, the decision seems to be on whether the citizens would rather rely on the efforts of the government or that of private individuals. As it stands, the former seems to be taking the day, with more people preferring to the government's way.
India Will Finally Become a Developed Nation With GST
Sanjiv Gupta CPA - 4 years ago
It has been hailed as the biggest tax reform in India’s 70-year history as an independent nation. The good and services tax (GST) bill was passed into law by Rajya Sabha last August 3. With its implementation starting on April 1, 2017, it will create a national value-added tax in India and create a common national market in the country of 1.2 billion people.The GST has been billed as a game-changer for the Indian economy. It will develop a common Indian market, minimize the cascading effect of the tax on the cost of goods and services, and affect almost all aspects of the business operation in the country—from the pricing of products and services, supply chain, accounting, and tax compliance.The GST is basically a ‘destination-based tax’ meaning it will be levied on where the goods or services as consumed, and not where they are produced. It puts an end to the complicated, indirect tax system in India where the Center and the State levy overlapping taxes.There have been proposals to amend the Constitution and change India’s tax system with the GST. Then the Prime Minister Atal Bihari Vajpayee had initiated the discussions on the GST. In 2006, Congress had looked into it. In March 2011, a constitution amendment bill was introduced but was lapped with the dissolution of the 15th Lok Sabha.The enactment of the GST is definitely one of the highlights of Prime Minister Narendra Modi’s reign.Why GST will move India Forward?The GST is a single tax levied on goods and services, from the manufacturer to the consumer. It subsumes various Central level taxes such as Central Excise duty, additional excise duty, service tax, countervailing duty, and special additional duty of customs. It also subsumes state-level taxes like sales tax, entertainment tax, purchase tax, entry tax, taxes on a lottery, betting, and gambling.GST is defined as any tax on goods and services other than alcohol for human consumption. It won’t also include taxes on petroleum products and stamp duty on an immovable property because these provide substantial revenue to the states.A centralized GST council will be set up. It will decide which taxes can be levied by states and which can be subsumed into the GST.The GST will be composed of central and state minister in charge of the finance portfolio. A dispute resolution mechanism will be established to resolve disputes regarding the GST.Petroleum products like crude, high-speed diesel and natural gas shall be subject to GST on a date to be determined by the GST council.Taxes on entertainment at panchayat, municipality, or district level will continue to be levied by states.States will continue to levy stamp duties that are typically imposed on a legal agreement by the central government.BenefitsThe following are the expected benefits of GST on the Indian economy:Simplify taxation. GST will replace 17 indirect taxes that various states and the Central government levy on goods and services. It is also expected to reduce compliance costs.Reduce tax evasion. With a simplified taxation system, more traders will be encouraged to pay taxes.For instance, a mobile phone distributor buys mobile phones from a manufacturer and sells it to a wholesaler. In the present system, the distributor has to bear the burden of paying excise duty. Thus, he’d rather pay without the invoice as it can add up to his total costs.But with the GST in full effect, the distributor will gain credit for all the taxes paid at the previous stage. This would encourage him to pay with an invoice. Thus, it is expected that all traders will opt for taking a bill for their purchases.No more long queues at a checkpoint. Long queues of trucks at interstate checkpoints are one of the familiar sights in India. State authorities would have to review and examine freight then apply the relevant taxes and fees.In fact, Indian trucks average a mere 80,000 kilometers a year no thanks to these delays and gridlocks. In comparison, trucks bringing various commodities across the US average 400,000 a year.With the GST in full effect, those long lines at interstate checkpoints would be a thing of the past.Encourage the growth of small entrepreneurs. Because of the simplified taxation system, small entrepreneurs can set up a business in any state of the country without having to worry about tax differences. GST basically removes location bias and can encourage enterprising citizens to set up businesses in undeveloped locations.Improve GDP. The Finance Commission had commissioned a study that showed India’s GDP will improve to about 2 percent after the implementation of the GST.Goods/Services to become cheaper. For consumers, the GST will also mean lower prices of most goods and services except for liquor and tobacco. With the GST, overlapping taxes will no longer affect the prices of commodities. For example, the construction and building materials industry are projected to be one of the biggest beneficiaries of the GST thus products like paints and cement are absolutely going down. Moviegoers, meanwhile, will be paying less for a movie ticket as the GST will bring down the high 27 percent entertainment tax.Effect on Key IndustriesMany key sectors of India’s economy are projected to benefit from GST. Among these are:The Information technology sector will benefit from the elimination of multiple levies, and this is projected to result in deeper penetration of digital services in the country.In India, most IT firms have different delivery centers and offices servicing a single contract. But with the GST rolled out, there’s a possibility that firms would require each delivery center to issue a separate invoice to a contracting party. The costs of electronic products like mobile phones and laptops are also anticipated to rise as duty on manufactured goods could go up to 18 percent from the current base of 14 percent.Fast-moving consumer goods. On the positive side, companies in the FMCG market will see a substantial reduction in their logistics and distribution costs. It has been shown that FMCG firms pay as much as 25 percent in taxes due to various levies like VAT, entry tax, and excise duty. With the GST, there could be a significant reduction in taxes of up to 17 percent.On the flip side, however, prices may increase by 20 percent if the recommended 40 percent GST for tobacco and aerated beverages is approved.E-commerce. The Indian e-commerce industry is seen as one of the biggest beneficiaries of the GST. The sector’s growth has long been hampered by an archaic tax regime. After all, the old tax structure was created long before the e-commerce industry was born. Industry experts believe that the unified tax system will help the e-commerce sector to expand and spur the growth of online retail startups.With the GST, dual taxation will be avoided. In the old system, states often have to ask where to levy the tax—the place where the seller is located, or the place where the buyer is located.With the GST everything is clear now—the tax will be in the state where the consumer resides. Thus there will be no need to pay for other taxes like entry tax, VAT on sales, and excise on manufacturing.The GST also means there will be no complicated paperwork that buyers online would have to accomplish. In 2015, several e-commerce firms like Amazon India and Snapdeal ceased delivering products in the northern Indian states of Uttar Pradesh and Uttarakhand because tax authorities in those states required the filing of VAT declaration form at the time of delivery.Buying Cars will become cheaper – Prices of vehicles could drop by as much as 8 percent as a result of lower taxes. However, the demand for commercial vehicles like trucks and delivery vans may be affected in the medium term because companies would no longer need to expand their fleet due to reduced time at checkpoints which translates to greater efficiency of their fleet.Expect More Movies Soon – Film producers and multiplex players are among the most taxed sectors in the country, having to deal with service tax, uniform tax, and entertainment tax. But with the GST, there will be uniformity in taxation and it is projected that taxes could go down by as much as 4 percent.However, the new law will not be beneficial to all sectors of the economy. It will hurt certain industries such as the following:Airline industry. Flying will become more expensive in India. GST will replace service tax on fares which range between 6 and 9 percent, depending on the class of travel. But with GST, that rate will be between 15 and 18 percent. Meaning, it will better for you to purchase tickets from the United States.Insurance/ financial sectors. Insurance firms are likely to hike their premiums as taxes will go up to 300 basis points. Investors, meanwhile, will have to pay more for mutual fund products given that taxes would push it by 3 percent.The rollout of the GST could lead to a higher price of medications in the country. The GST can likely increase indirect tax by 60 percent, which pharmaceutical firms will likely pass on to consumers.ChallengesAside from the negative impact of the new tax system on certain sectors of the Indian economy, there are also other challenges that need to be hurled such as:It can hurt the country’s own manufacturing industry – With Modi’s Government big push towards the “Make In India” Campaign – this might be a setback One of the worries of those who opposed the GST is that it can lead to imports being cheaper compared to goods produced in India. Under the GST imports are entitled to a set-off against the final selling price which is not permissible under the existing tax regime.Once the GST has been rolled out, it would replace taxes like countervailing duty, a special additional duty of customs, among others. With lesser taxes, the prices of imported goods in the market will likely go down as well.That would have a detrimental effect on the manufacturing sector in India, which is beset by cumbersome labor, high taxes, and various regulatory laws in most states. As such, there is a fear that the GST would hurt the Make in India campaign.India will be implementing a complicated tax regime.India will have the most complex version of a GST in the world. In most countries, GST pertains to one tax for all commodities and services. It is also applied throughout the nation.In India, the central government and the states are allowed to concurrently levy GSTs. States can also levy service tax, which is a central levy. In effect, there will be 31 GST enactments (for the 29 Indian states and the territories of Delhi and Puducherry) needed.Moreover, states will be able to levy sales on potable alcohol, aviation fuel, diesel, and petrol. On the other hand, the central government can levy excise duty on all other goods including tobacco and tobacco products.Other issues to be addressed.There will also be a lot of issues that need to be addressed on e-commerce transactions and restricted credit. Although each state will have its own GST, there will be multiple rules for each act. Moreover, there will be separate credit rules for integrated GST, central GST, and state GST. Studies also suggest there will be a substantial increase in the costs of paperwork and compliance.With these issues to be addressed, many quarters are calling for the implementation in stages. The argument that this strategy will reveal possible hurdles in need of attention, as well as improving the IT infrastructure that is vital to a successful GST.Although there are apprehensions on the implementation of the GT one thing is for sure—many sectors of the economy are looking forward to the day when the GST will be finally implemented. From the looks of it, this could be one way to help the third-largest economy in Asia expand even further.
Understanding Hillary Clinton’s Tax Plans
Sanjiv Gupta CPA - 4 years ago
Democratic presidential candidate Hillary Clinton has vowed that she will make sure the wealthy and the largest firms will be paying their fair share while providing tax relief to working families. According to her, the economy should work for everyone and not just at the top of the food chain. She has committed to restoring fairness in the US tax code, vowing to create more jobs in the US and make the economy more competitive in the long haul.Clinton has pledged to do the following:Restore fairness to the US tax code by implementing a ‘fair share surcharge’ on multi-millionaires and billionaires. He will also champion for measures such as the Buffett Rule in a bid to ensure that the richest citizens in the country won’t be paying a lower tax than middle-class families.She has also assured that her administration will close loopholes in the current tax code so that multi-million dollar estates will be paying their fair share of taxes.Put a stop to corporate and Wall Street tax loopholes such as inversions that reward firms for shifting profits and bringing in jobs overseas. She has stated her desire to charge companies that leave the US, levying an exit tax on those firms that get away with untaxed foreign earnings.She also said that she will be closing tax loopholes that allow Wall Street money managers to pay lower taxes than some middle-class households. And under the Clinton administration, businesses that bring in much-needed jobs in the US will be given lower taxes.Simplify taxation for small firms to encourage the growth of micro, small, and medium enterprises. In turn, these firms can grow and hire more people. In particular, she is setting sights on freeing small businesses with 1-5 employees that spend more than a thousand dollars on federal tax compliance. According to her, that is more than 20 times higher than the average for bigger companies.Provide tax relief to working families and shield them from the rising costs of day-to-day living. She has particularly offered tax relief for Americans who are facing excessive out-of-pocket health care expenses as well as those who are taking care of an elderly or ill family member.A Closer Look at Clinton’s Tax PlansHere are the major points of Clinton’s tax plans:Charging a 4% surtax on adjusted gross income or income earned over $5 million. This proposal would affect the so-called high-income taxpayers or roughly one in every 5000 taxpayers. In the long run, it is expected to raise around $150 billion in tax revenue for the federal government.However, the income tax rates for individuals, married taxpayers, and heads of households earning less than $5 million a year will not be affected or changed at all.The imposition of the so-called Buffett Rule that would call for a 30 percent minimum tax on taxpayers who have an adjusted gross income of more than $1 million.To the uninitiated, the Buffett rule was coined by outgoing US President Barrack Obama who had noted of billionaire Warren Buffett’s criticism of current tax policies. In 2011, Buffett wrote that he had paid lower tax rates than his secretary.According to Clinton, the imposition of the Buffett Rule would be one that would help the nation achieve greater fairness in its tax system.Raising capital gains taxes on high-income investors. High-income fliers, or those who are earning more than $400,000 make a lot of money from capital gains. In the current tax code, these high-income investors pay a 20 percent tax on realized gains from investments that were held more than a year. Clinton is amenable to preserving the rate but only for investments that were for a minimum of six years. She bats for investments that were held less than six years to be taxed on a sliding scale. This would encourage investors to think long term as they have a tax incentive to hold onto an investment.Raise tax rates on big estates. If Clinton gets elected, expect money and assets left to heirs to be tax heavily if these come from a big estate. She also wants to tax estates worth more than $3.5 million, and $7 million for married couples. These are far lower than today’s estate tax exemption level of $5.45 million for individuals and $10.9 million for couples.She also wants the estate tax rate to be slashed to 40 percent from 45 percent.For business taxes, Clinton wants the following:The standard deduction for small businessesRaise the limit for foreign ownership in inversion transactions to 50 percent of combined company shares from the current 20 percentImpose a corporate exit tax on unrepatriated corporate earningsTax high-frequency trading although the rate is still to be determinedProvide tax credits for investments in community development and infrastructureReform performance-based tax deductions for top-earning executives of public firmsEliminate tax incentives for fossil fuelsImpact of Higher Tax on High-Income EarnersThe nonpartisan Tax Policy Center estimates that taxpayers in the upper echelon would have to deal with an average tax increase of $4,527, representing a 1.7 percent reduction in after-tax income. Those who have incomes in the $295,000 and $732,000 range would have to pay $2,700 more in taxes. Those in the 0.1 percent with income greater than $3.8 million will also have their taxes increase to about $520,000.The four percent surcharge that Clinton is proposing stems from a report by the IRS that in 2013, the 400 top income payers paid an effective tax rate of 23 percent brought about by lower rates on capital gains and other tax loopholes.Not surprisingly, the bottom 95 percent of the taxpayers will not see any changes to their taxes. The Tax Policy Center says that if Clinton’s tax proposals are enacted, this would translate to an increase in revenue by about $1.1 trillion over the next decade.The Tax Policy Center also notes that almost 80 percent of tax increases in a Clinton administration would affect only 1 percent of the population in the first decade. One in the 1 percent would owe as much as $120,000 more while the poorest citizens would owe $6 more.But the Tax Foundation, a top independent tax policy research organization, sees Clinton’s plans as having a detrimental impact on the economy. In the long run, it could reduce the economy’s size by 1 percent according to the foundation’s Taxes and Growth Model. It is also projected to lead to nearly 1 percent lower wages and 311,000 fewer jobs as well as 2.8 percent smaller capital stock. The foundation states that these are a result of higher marginal tax rates on labor income and capital.The National Center for Policy Analysis’ Tax Analysis Center supports those claims of the Tax Foundation. In backing up the claims of the Tax Foundation, the NCPA says that the tax plan of Clinton will also hurt other taxpayers and not just the rich contrary to what her drumbeaters are saying.A study conducted by NCPA senior fellow Dr. David Tuerck shows that while federal tax revenues would increase if Clinton’s tax plans are implemented it can also affect the income of the general population.In the said study, the top 10 percent of income earners would lose almost 2 percent of their broadly measured income in 2017. Moreover, the poorest 10 percent of the population will be lost around 0.7 percent of their broadly measured income which is the largest loss among the bottom 90 percent of the population.The study points out that taxing high-income earners can slow down economic growth, which can hurt even the lowest income earners.Taxes on Small BusinessesClinton says she is proposing a scheme called “checkbook accounting” that will make filing taxes for small firms as simple and easy as keeping a checkbook or printing out a bank statement.The standard deduction for small businesses is designed to allow small businessmen to take a standard deduction instead of tracking expenses like rent, phone bills, and office supplies. There’s still no specific amount of percentage discussed, as this would be up to Mrs. Clinton’s treasury department to refine the idea.Many observers think that the idea will help businesses because it would be much simpler for them to file taxes. It is also seen to provide a net benefit to small firms as they can still choose to list all their deductions, and as such, any firm will be able to choose the option most favorable to them.However, others point out that the benefits of this tax proposal aren’t that big for small firms. Most firms today rely on technology such as apps to track their expenses. They also use those files for filing their taxes.Capital Gains Taxes Impact on investorsClinton’s tax proposals will also have an effect on investors in the country. As mentioned earlier, Clinton is batting for six capital gains taxes, with longer holding periods getting the lowest levy.Clinton believes that by encouraging shareholders to hold on to their assets for the long haul, companies will be able to engage in moves that create long-term value like investing more in employees and raising wages instead of buying back shares.The Tax Policy Center estimates that Clinton’s plan to increase capital gain taxes on investments held for shorter than six years would raise around $84 billion over a decade. This is assuming there will be little changes in investing patterns.But the Tax Foundation says those plans will reduce tax revenues as it would push investors to hold on to their holding a lot longer. The organization says that this proposal would likely result in a loss of around $375 billion on a static basis, as it can reduce the number of capital gains realizations.The mutual fund industry is expected to be hit by Clinton’s capital gains tax proposal. If Mrs. Clinton’s plan pushes through, the belief is that investing in ETFs will become more popular than actively managed funds which have a 2-3 year time horizon.Impact of Exit Tax on CompaniesAnother pillar of Clinton’s tax program is charging expatriating US firms an ext tax based on their offshore earnings. Clinton’s explanation is simple – “if they (companies) want to go, they have to pay to go.”Clinton wants firms that have their tax residency moving to a non-U.S. jurisdiction to immediately pay its corporate income tax on overseas income that it has deferred. The concept is basically asking for corporate exiters to pay before they escape.This proposal is seen to counter the move of many US firms to shift their tax jurisdiction out of the US, which has the highest corporate tax rate at 35 percent. If this proposal comes into being, firms will face penal provisions for shifting tax residency abroad to leverage tax advantages.Interestingly, this is an issue that is seen to protect the interests of US workers which Clinton’s rival Donald Trump has also championed by blasting trade deals like the North American Free Trade Agreement.ConclusionWhile Clinton’s tax plans appear to cater to the majority of US taxpayers, the consensus of many experts is that it would be detrimental to the economy in the long run. Although most of her policies except for the capital gains policy would likely raise tax revenue, organizations like the Tax Foundation believe that her plans will impose higher marginal tax rates on capital and labor income. This can then result in a slowdown in the US economy in the long run. This detrimental effect on the US economy will overshadow the revenue that Clinton’s tax policies could collect.Indeed, Clinton’s tax plans appeal to a larger part of the population but a closer examination of her tax program reveals that there is still a lot to be improved on.
What is ADB or Accelerated Death Benefit?
Sanjiv Gupta CPA - 1 year ago
An ADB or accelerated death benefit is the benefit attached to life insurance policies. This insurance benefit pays the insured while he is still living. This lets the policyholders receive advances in cash and not the death benefit when the holder has a terminal disease. Individuals who prefer ADBs are those who have less than a year left. The money they receive is what they use for additional costs like medicine and treatments so that they can keep living.When choosing insurance policies with accelerated death benefits, the policyholder can then pay for day to day expenses. Another upside is that when they pass away, their loved ones do not have to worry about the final expenses such as funeral and burial costs. In fact, they can even live comfortably. This kind of benefit started around the late 1980s. This was to lessen financial pressures, especially individuals who were living with AIDS.There are policies that have this available for their holder even if it is not stated clearly in the contract. How does an Accelerated Death Benefit work?It is worth investing in life insurance. It ensures that the loved ones of the policyholder receive the financial protection required when the latter passes away. It is also an opportunity for the holder to provide for his family if there is a tragic and unexpected occurrence – like accidents. However, what about those who have conditions that are draining their bank accounts?This is where the Accelerated Death Benefit comes in and becomes the savior. In most cases, people going through the terminal and diagnosed illnesses are considered to be eligible to get the ADBs. This is the reason why it is also regarded as a living benefit. Definition of a Living Benefit?Living benefits are added to insurance policies before as well as after these have been purchased. With living benefits, patients diagnosed with terminal illnesses can also access portions of their benefits before they pass away. Initially, when living benefits were created, it was strictly for those who were diagnosed with AIDS/HIV. Over a period of time, it was then offered to patients who were diagnosed with cancer, kidney failure and terminal illnesses aside from AIDS. Medical expenses for these terminal illnesses can also be quite expensive. There are living expenses that the patient have to pay off as well. Living benefits can help all the expenses and can also be a form of assistance to those who are suffering from these terminal illnesses. A number of insurance companies provide living benefits in the form of the rider through life insurance policies. It comes in different forms of packages and there are lots of payment options to choose from. All in all, these have living death benefits. The death benefit is received when the policyholder has already been diagnosed with a terminal disease. It can also be obtained when the policyholder eventually contracts a disease. Contacting a terminal disease is definitely not in the mind of most people but for a majority, living benefits are something that they prefer to have in their policies. By having this, they can receive a particular percentage from death benefits. The percentage depends on their insurance companies. After death, the remaining percentage of the benefit is then paid out to the beneficiaries of the policyholder. If the holder recovers from the illness, they do not have to repay what they received in the form of benefits. Pros & Cons of Accelerated Death BenefitsSeniors who are terminally ill have insurance policies that can receive a percentage of the death benefits from their insurance providers way before their death. These benefits can also be used for any kind of assistance, especially for senior citizens. They can use this for nursing home care, hospice, assisted living and home care. ADB beneficiaries can also receive death benefits even if it is reduced in the amount of the ADB. ADBs are relatively new options. This results to elderly individuals who have been holding their policies for a number of years but not noticed that they can get the ADB in there. Policyholders who are interested should also ask their insurance providers if this option is available for them. The advantage of receiving accelerated death benefits is that they let policyholders have a percentage of the death benefit even before they pass away. There is no really major downside to this. The limitation is that there are policyholders that are required to only obtain this if they have been diagnosed by hospitals that they are terminally ill. Other Options for Life Insurance Policy HoldersThe same option that can be provided to terminally ill seniors is regarded as the viatical statement. Under this, policies are sold to the third party and the holder receives a settlement that is of a lump sum. The difference between viatical statements and that ADB is that with the latter, policy owners continue to pay monthly premiums. With the former, the person who purchased the policy is in charge of the payments on a monthly basis. This is the very reason why seniors prefer viatical settlement instead of accelerated death benefits. Death benefits which are also regarded as life insurance loans are options for seniors. This kind of loans with low interest allows the policyholder to borrow despite the cash value that is stated on the insurance policy. Borrowers can then pay the debt that they owe in their own time. They also have the option to not make payments. During the time of the death of the policyholder, the loan amount including the interest is then subtracted from death benefits. Benefits and LimitsAccelerated death benefits have no restrictions. Most cases have families who receive ADB putting the resources to a cost that provides food for loved ones. This is not a requirement nonetheless. The benefits are then paid out in a lump sum that arrives to policyholders once. However, there are insurance companies that offer installments. These policy holders then get an amount every month. It is very important to distinguish which option is better for them and has more impact on the eligibility of the Medicaid insurance of the policyholder along with their loved ones. When applying for accelerated death benefits, there is a requirement to release medical information. This lets the insurance companies be in the know of the life expectancy of the person that will be insured. Benefits are then paid out in four to six weeks. It is important to note that ADBs can have as high as 95% when it comes to death benefits. The insurance provider also sets maximum benefits that are based on the life expectancy of the holder. This then makes him come up with a final decision on the financial advance that they are required to obtain. It is very crucial for policyholders to also know that ADBs are not taxed. Qualifications for Accelerated Death BenefitsAn individual qualifies for living benefits if he or she has been contracted or diagnosed with a terminal disease. They are then expected to die in just a matter of two years. If they have this illness then this reduces their life span. If the diagnosed illness requires the policyholder to have an organ transplant, then the benefits cover their care in a hospice, even if this is long-term care. Accelerated death benefits provided to individuals who require assistance on a daily basis. The definition of this assistance are activities such as using the toilet and bathing. The cost of living benefits also depends on the insurance provider. If the policy already includes coverage, then the cost also comes with the policy. If this is not the case, policyholders pay fees or percentage for the death benefit. Taxation of Accelerated Death BenefitsADBs are usually not taxable. This is because the benefits are tax-exempt for those who expect they will die in a matter of two years. This kind of benefit is not there to serve as a substitute for long term coverage. It is a supplement for the costs that the insurance company failed to cover. If policyholders think that they are eligible and qualified for death benefits, it is best that they clarify this with their insurance agents. They should also remember that receiving living benefits affect their eligibility for SSI as well as Medicaid. Example of an Accelerated Death BenefitHere is how accidental benefit riders can play the policy out. 1. The client has a critical, terminal and chronic illness that qualifies under the insurance. 2. The client has filed a claim that accelerates the portion of death benefits. 3. The claims department, as well as the underwriters, are responsible for reviewing the prognosis ratings as well as the medical records of the potential policyholder. This is how they can estimate the discounted offer. It depends on the life expectancy and if there will be changes. If life expectancy is high, then the percentage that is offered to the client is also high. 4. Once the client accepts, then they can receive the lump sum of the amount that has been determined in a matter of two weeks. If the death benefit is then accelerated, then the face that remains is $0. The policy is also terminated. If there is still part of the portion remaining, then the premium of the client will also be reflected on the new face amount. Accelerated Death Benefits and Chronic IllnessesRegarding chronic illnesses, there has been a proposition but it has not yet been adopted to the rider. The IRS is yet to provide their policies on payments of critical illnesses. There is hardly or probably no accelerated benefit that is taxed by IRS. This is considering that the policy is turned into a MEC or a modified endowment contract. Once this happens, then it will remain a modified endowment contract. All the benefits that go with it will also be taxable. Policyholders are advised to always have tax advisors or CPAs with them whenever they deal with IRS. Life Insurance and Accelerated Death RidersNo one can predict the future. No one wants to ponder on how they will die – whether they will suffer from a terrible illness or they will die in their sleep. Nonetheless, it is crucial that everyone plans for worst-case scenarios possible. Loved ones deserve as much protection as they can especially when it’s the head of the house who is diagnosed with the illness and is counting down the days. If this happens, then the holder will only leave his loved ones with quite a massive debt due to the final expenses. Funeral and burial expenses are also not cheap. They can be quite expensive. So if loved ones already have debt, giving them more debt is not a good idea. Not only do they lose someone they love dearly, but they will also be in a difficult financial situation.A common reason why a number of people do not get life insurance or even an accelerated rider is they assume it is quite expensive and way beyond their budget. That is not far from the truth. There are situations when there are multitudes of options that provide your family with the life insurance and protection that they need. The best and easiest way to obtain the insurance rate at its lowest is through an insurance agent that works independently. Unlike traditional agents, these independent agents do not work with just one company. They represent dozens of insurance providers that are highly rated all over the nation and they can easily bring the lowest premiums to the policyholder. Insurance companies are different from one another. For one, they have different ways of calculating their premiums on the riders and life insurance. In order to get the best rates, compare multitudes of quotes even before choosing the best insurance policy that works for you. It is a waste of time calling each and every agent. Go to one expert and compare all the possible plans that you can have.
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