With an ALS diagnosis, check your policy’s accelerated death benefit and chronic illness riders before exploring any sale — riders often pay quickly, cost nothing in commissions, and receive favorable tax treatment, and only after ruling them out does a viatical settlement make sense. ALS is one of the conditions where the secondary market moves fastest, but speed is not the same as best value, and the cheapest source of cash is frequently already inside the contract you own.
ALS also changes the practical mechanics of everything. Progressive loss of speech and hand function means signing documents gets harder over time, and cognitive changes occur in a meaningful minority of patients. Whatever decisions a family intends to make about a life insurance policy should be made and documented early, while the insured can clearly direct their own affairs.
This page covers riders, the difference between a viatical and a life settlement, what the tax code requires for the income exclusion, timelines, and the situations where keeping the policy untouched is genuinely correct. Pine Lake Life Solutions provides education and a free policy review, not medical, legal, or tax advice.
In This Article
- Benefits That Move Faster Than Any Sale
- Viatical vs. Life Settlement: A Legal Distinction, Not Marketing
- Why ALS Files Are Priced Differently
- Capacity, Signatures, and Doing It Early
- Every Alternative Compared
- When a Viatical Is the Wrong Answer
- Timeline, Protections, and How to Start
- Frequently Asked Questions
Benefits That Move Faster Than Any Sale
Two federal programs treat ALS differently from other diagnoses, and both are worth confirming before any policy decision. The ALS Disability Insurance Access Act of 2019 eliminated the five-month waiting period that normally applies before Social Security Disability Insurance benefits begin for people diagnosed with amyotrophic lateral sclerosis. Separately, federal law waives the standard 24-month waiting period for Medicare eligibility for individuals entitled to disability benefits on the basis of ALS. Confirm current administration of both with the Social Security Administration, as of 2026.
Inside the policy, look for a terminal illness rider, an accelerated death benefit rider, a chronic illness rider, and waiver of premium. Terminal illness riders commonly trigger on a physician certification of a prognosis of 12 or 24 months or less depending on the contract. Chronic illness riders typically trigger on inability to perform two of six activities of daily living, or severe cognitive impairment, certified within the prior 12 months — a threshold ALS patients often reach. Start with how accelerated death benefit riders work.
Viatical vs. Life Settlement: A Legal Distinction, Not Marketing
A viatical settlement is the sale of a policy by an insured who is terminally or chronically ill within the meaning of Internal Revenue Code section 101(g). A life settlement is a sale by an insured who does not meet that definition. The transactions look similar on paper and are taxed very differently.
Section 101(g)(2) extends the death-benefit income exclusion to amounts received on the sale or assignment of a policy by a terminally or chronically ill insured — but the exclusion depends on the buyer qualifying as a viatical settlement provider under the statute’s conditions, which generally means being licensed in the insured’s state, or, where the state does not license providers, meeting the requirements of the NAIC Viatical Settlements Model Act and Model Regulation. The statute defines terminally ill as certified by a physician as having an illness reasonably expected to result in death within 24 months.
The practical instruction is simple: ask in writing whether the transaction is structured as a viatical settlement and whether the purchaser meets the section 101(g)(2) conditions, then have your CPA confirm. Our comparison of a life settlement vs. a viatical settlement walks through both.
Why ALS Files Are Priced Differently
Life expectancy underwriters reading an ALS file look for date of symptom onset and date of diagnosis, since time from onset is one of the strongest predictors; site of onset, with bulbar onset generally carrying a shorter course than limb onset; the ALS Functional Rating Scale-Revised score and its rate of decline over successive visits; forced vital capacity trend on pulmonary function testing; and whether the patient has a feeding tube or uses non-invasive ventilation.
Rate of change matters more than any single measurement. Two patients with identical current function but different rates of decline receive very different estimates. This is one of the reasons a complete neurology record, ideally from an ALS clinic with serial measurements, produces a far better assessment than a single visit note.
Because projected life expectancy in ALS cases is often short and well documented, offers in this category can exceed the ordinary range and the underwriting can move faster than the standard 60 to 120 day timeline. Nothing about that is guaranteed for any individual file.
| Route | Typical Speed | Commission | General Tax Posture |
|---|---|---|---|
| Waiver of premium rider | Weeks | None | No cash received |
| Terminal illness / ADB rider | 2-6 weeks | None | Generally excluded under IRC 101(g) if qualifying |
| Chronic illness or LTC rider | Weeks | None | Generally excluded, subject to per-diem limits |
| Policy loan | Days to weeks | None | Loan proceeds generally not income while in force |
| Viatical settlement | Often under 90 days | Broker commission possible | May be excluded under IRC 101(g)(2) if conditions met |
| Life settlement | 60-120 days | Broker commission possible | Partly taxable; Form 1099 issued |
Capacity, Signatures, and Doing It Early
Every settlement requires the insured’s signature on multiple documents: a HIPAA authorization, an application, a closing package, and carrier change-of-ownership forms. ALS progressively impairs hand function and speech, and a portion of patients develop frontotemporal cognitive changes.
Address that in advance. Execute or review a durable power of attorney while capacity is unquestioned, and make sure it contains an express grant of authority over insurance transactions — many state statutes following the Uniform Power of Attorney Act require specific rather than general authority for acts such as changing a beneficiary designation. Confirm with the carrier and with any escrow agent what forms of signature they accept, including whether electronic signature or signature by mark with witnesses is acceptable. See power of attorney and selling a policy and consult your own attorney about your state.
Every Alternative Compared
Keep the policy. Frequently the correct answer. A death benefit is generally received income-tax-free by beneficiaries under Internal Revenue Code section 101(a)(1). If a spouse or child will need the full amount and premiums are covered, do not trade it for a discounted lump sum.
Waiver of premium. If the policy has this rider and the insured is totally disabled, premiums may stop entirely while full coverage continues. This is the most overlooked benefit in the entire contract.
Terminal illness or accelerated death benefit rider. Fast, commission-free, and generally excluded from income under section 101(g) when the statutory conditions are met. Reduces the remaining death benefit.
Chronic illness rider or long-term care rider. Pays against ADL-based triggers or qualified care costs, which matters enormously as home care hours increase.
Policy loan or withdrawal. Available on permanent policies with cash value; keeps coverage in force.
Reduced paid-up insurance. Stops premiums and preserves a smaller paid-up benefit — useful when the household simply cannot keep paying.
Viatical settlement. A lump sum today, sensible when care costs, home modifications, or lost household income create an immediate need and the coverage is no longer serving its original purpose.
Surrender or lapse. The weakest outcomes and generally to be avoided, since this is precisely when the policy has the most value.
When a Viatical Is the Wrong Answer
Do not sell if the family will need the death benefit. That is the plainest version of the rule. ALS households often face lost income from both the patient and a caregiving spouse, and the death benefit is frequently the survivor’s financial floor. Converting it to a fraction of face value can leave a surviving spouse worse off for decades.
Do not sell before checking riders, because a rider often delivers a large share of what a sale would deliver, with no discount for the buyer’s return and no third party involved. Do not sell if premiums are being waived and there is no cash need. And be careful if the household is planning around Medicaid or SSI: proceeds are countable resources, and a lump sum can create eligibility problems that careful spending or a properly drafted trust must address. Read how life insurance counts as a Medicaid asset and involve an elder law or special needs attorney.
Timeline, Protections, and How to Start
Standard settlements run roughly 60 to 120 days. Viatical transactions with complete medical documentation are often faster. Regardless of speed, insist on the same protections: an offer in writing, disclosure of any broker commission as both a gross and net figure, funds held by an independent escrow agent until the carrier records the ownership change, and a written statement of the state-law rescission period, commonly 15 to 30 days after funding depending on the state.
Because a serious diagnosis attracts bad actors, be alert to anyone pressuring an immediate signature, asking for upfront fees, or refusing to put terms in writing. Our guide to life settlement red flags lists the warning signs.
To learn whether a policy is a candidate, send the policy cover page showing insurer, policy number, face amount, and issue date. The review is free and carries no obligation, and if riders are the better route you will be told so. Call (305) 209-7183. This page is educational information only and is not medical, legal, or tax advice.
Frequently Asked Questions
Does an ALS diagnosis qualify me for a viatical settlement?
It often does, but the legal test is specific. Internal Revenue Code section 101(g) defines terminally ill as certified by a physician as having an illness reasonably expected to result in death within 24 months, with a separate definition for chronically ill. Whether your file meets that test depends on your physician’s certification and the medical record.
Should I check my riders before looking at a sale?
Yes, always. Terminal illness, accelerated death benefit, chronic illness, and waiver of premium riders pay without a buyer, without a commission, and often within weeks. Qualifying payments generally receive favorable treatment under Internal Revenue Code section 101(g). A sale should be evaluated only after ruling those out.
Are viatical proceeds tax-free?
They can be excluded from gross income under section 101(g)(2), but only when the purchaser meets the statute’s conditions, generally licensure in the insured’s state or compliance with the NAIC Viatical Settlements Model Act. Ask in writing how the transaction is structured and confirm the treatment with your own CPA.
What medical records will be needed?
Typically neurology and ALS clinic notes showing date of symptom onset, site of onset, serial ALSFRS-R scores, forced vital capacity trends, and any feeding tube or ventilation support. Rate of decline across visits matters more than any single measurement, so a complete serial record helps considerably.
How quickly can a transaction close?
Standard settlements run roughly 60 to 120 days, and viaticals with complete documentation are frequently faster. Insist on written offers, independent escrow, and a written statement of your state’s rescission period, which is commonly 15 to 30 days after funding.
What if the insured can no longer sign documents?
A durable power of attorney executed while the principal had capacity, containing an express grant covering insurance transactions, is normally required; otherwise a court-appointed guardianship may be necessary. Many states following the Uniform Power of Attorney Act require specific rather than general authority. Have the document reviewed by an attorney early.
Could selling hurt Medicaid or SSI eligibility?
It can. Lump sum proceeds are a countable resource for needs-based programs, and transfers can raise look-back issues. If Medicaid, SSI, or a special needs plan is part of the picture, coordinate with an elder law or special needs attorney before any funds are received.
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Related Reading
- What Is A Viatical Settlement
- Life Settlement Vs Viatical Settlement
- What Is An Accelerated Death Benefit Rider
- Terminal Illness Sell Policy
- Power Of Attorney Sell Policy
- Life Insurance Counts Medicaid Asset
- Life Settlement Scams Red Flags
- Viatical Settlement Tax Exclusion Explained
Pine Lake Life Solutions does not purchase life insurance policies and does not provide legal, tax, or investment advice. Information provided is for educational purposes only. Eligibility for any option, including life settlements, is not guaranteed and depends on individual circumstances, policy terms, underwriting, and market conditions. Consult independent legal, tax, or financial professionals before making decisions regarding a life insurance policy.