August 28, 2026
4:11 am

What Is a Section 101(g) Rider?

A Section 101(g) rider is an accelerated death benefit attached to a life insurance policy that lets the insured collect part of their own death benefit while still alive, if a licensed health care practitioner certifies that they are terminally ill or chronically ill. The number 101(g) is not a product name. It is the paragraph of the Internal Revenue Code that says money paid out this way is generally treated as if it were paid because of death, which is why it usually arrives free of federal income tax.

Almost nobody buys one on purpose. It arrives bundled into a policy, often at no separate charge, and sits unnoticed for twenty years until somebody gets a diagnosis. Families then discover the benefit was there the whole time, sometimes after they have already surrendered the policy or stopped paying premiums.

This page is organized around the actual documents and moments where you will run into the term, in the order you are likely to meet them, because that is where the decisions get made. Pine Lake Legacy provides education and a free policy review only; this is not tax or legal advice.

In This Article

Where You First Meet It: The Policy Schedule and Rider Page
Where You Meet It Again: The Doctor’s Certification Form
Where You Meet It in the Payout Letter: Discount, Lien, or Reduction
Where You Meet It at Tax Time: Form 1099-LTC and Form 8853
How a 101(g) Rider Differs From the Things It Is Confused With
The Decision the Rider Forces: Accelerate, Keep, or Sell
Frequently Asked Questions

Where You First Meet It: The Policy Schedule and Rider Page

Open the policy and find the schedule of benefits, usually within the first three pages. Riders are listed there with a form number and often an issue date. A 101(g) rider may be printed under any of several marketing names: Accelerated Death Benefit Rider, Terminal Illness Rider, Living Benefit Rider, Chronic Illness Accelerated Benefit Rider, or simply Accelerated Benefit Endorsement. The statutory reference is often buried in the rider’s own text rather than on the schedule.

Two clues tell you what you are holding. First, look for the phrase treated as an amount paid by reason of the death of an insured, or a direct reference to section 101(g) of the Internal Revenue Code. Second, look at the charge column. A large share of 101(g) terminal illness riders carry no explicit monthly charge, because the carrier prices the discount into the payout rather than into a premium. That is very different from a tax-qualified long-term care rider, which carries an explicit monthly deduction.

If you cannot find the policy at all, call the carrier’s policyholder service line and ask for a copy of the contract with all riders and endorsements, plus a current in-force illustration. Carriers generally provide both on request, and they are the only documents that settle what your rider actually says. A summary brochure or an agent’s recollection is not a substitute.

Where You Meet It Again: The Doctor’s Certification Form

Nothing happens under a 101(g) rider without a certification from a licensed health care practitioner, and the standard is written into the tax code rather than left to the carrier’s discretion.

For the terminal illness branch, the statute defines a terminally ill individual as one certified by a physician as having an illness or physical condition that can reasonably be expected to result in death within 24 months of the certification. Many carrier contracts are stricter than the code and use 12 months. Read your rider, because the contract can narrow the window even though the tax rule allows 24.

For the chronic illness branch, the code borrows the definition used for tax-qualified long-term care contracts: the insured is unable to perform at least two of the six activities of daily living without substantial assistance for a period expected to last at least 90 days, or requires substantial supervision to protect against threats to health and safety due to severe cognitive impairment. The six activities are eating, toileting, transferring, bathing, dressing and continence. The certification must have been made within the preceding 12 months, which means chronic illness claims generally require annual recertification rather than a one-time letter.

Some chronic illness riders written under 101(g) add a condition the tax code does not require: that the impairment be expected to be permanent. If your rider has that word in it, a recoverable condition such as a hip fracture with expected rehabilitation may not qualify. That single word is the most common reason a claim families expected to be approved is denied.

Where You Meet It in the Payout Letter: Discount, Lien, or Reduction

The claim approval letter is where the math shows up, and it is rarely what people expect. Carriers use three broadly different methods, and your rider will specify one.

Discounted payment. The carrier pays a present value of the accelerated portion, discounting for interest and the expected time until death. A family requesting $100,000 of acceleration may receive noticeably less than $100,000 in cash, with the full $100,000 removed from the death benefit.

Lien method. The carrier advances the requested amount and records it as a lien against the policy, accruing interest at a rate stated in the rider. The death benefit is reduced by the lien plus accrued interest at death.

Dollar-for-dollar reduction. The cleanest version. Every dollar paid reduces the death benefit by exactly one dollar. This is more common on chronic illness riders sold as part of newer combination products.

Two limits appear in almost every rider. There is a maximum percentage of the face amount that may be accelerated, commonly in the range of 50% to 95% for terminal illness and often a monthly cap of roughly 1% to 4% of face for chronic illness. And there is a dollar ceiling, frequently somewhere between $250,000 and $1,000,000 across all policies with the same carrier. Ask for both figures in writing before you decide anything.

Feature	101(g) accelerated death benefit rider	7702B long-term care rider
Regulated as	Life insurance	Long-term care insurance
Typical cost	Often no explicit charge; benefit discounted instead	Explicit monthly charge deducted from the policy
Trigger	Terminal illness, or chronic illness certification	Chronic illness certification under the 2-of-6 ADL or cognitive test
How paid	Usually indemnity, no receipts required	Often reimbursement of documented care costs
Agent licensing	Life license	Life plus long-term care line of authority
Tax reporting	Form 1099-LTC, reconciled on Form 8853	Form 1099-LTC, reconciled on Form 8853

Where You Meet It in the Payout Letter: Discount, Lien, or Reduction

Where You Meet It at Tax Time: Form 1099-LTC and Form 8853

In January or February after a payout, a Form 1099-LTC arrives from the carrier. That form frightens people because it looks like a report of taxable income. Usually it is not. It is an information return, and the accelerated death benefit is reported in its own box precisely so the IRS can match it against the exclusion you claim.

For a terminally ill insured, amounts received under a qualifying 101(g) rider are generally excluded from gross income in full. For a chronically ill insured the exclusion is narrower: benefits paid on a per diem or other periodic basis are excluded only up to an indexed daily limit, and amounts above it are excluded only to the extent of actual unreimbursed qualified long-term care costs. That daily cap has run in the neighborhood of $400 to $420 per day in recent years and is adjusted annually; confirm the current figure in the IRS revenue procedure for the tax year or with your CPA before filing.

The reconciliation happens on IRS Form 8853, Archer MSAs and Long-Term Care Insurance Contracts, in the section for long-term care insurance contracts. Give the 1099-LTC to your tax preparer even if you are confident nothing is taxable, because an unreported information return generates an IRS notice regardless of the outcome. Our page on what a Form 1099-LTC actually reports walks through each box.

There is one trap worth naming. The exclusion does not apply if the policy is owned by someone with a business interest in the insured, such as an employer or a business partner, other than in specific circumstances the statute lists. If the policy is not owned personally, ask your CPA first.

How a 101(g) Rider Differs From the Things It Is Confused With

A Section 7702B rider. This is the boundary that matters most. A 7702B rider is a tax-qualified long-term care rider. It is regulated as long-term care insurance, requires the agent to hold a long-term care line of authority, must come with an outline of coverage, and carries an explicit charge. A 101(g) chronic illness rider is regulated as life insurance, is often free or cheap, and frequently discounts the benefit instead of charging for it. Reimbursement of receipts is common under 7702B; indemnity payment with no receipts is common under 101(g). See how a 7702B rider works for the other side of that line.

A viatical settlement. Under a 101(g) rider your own carrier pays you and you keep what you do not accelerate. In a viatical settlement a third-party buyer purchases the entire policy from you, becomes the owner and beneficiary, and takes over the premiums. Both can be tax-favored for a terminally ill insured, but they are different transactions with different paperwork.

A waiver of premium rider. That rider pays your premium during disability. It never puts cash in your hand.

A cash value withdrawal or policy loan. Those draw on the savings component of a permanent policy, are limited by the account value, and can be taxable. A 101(g) acceleration draws on the death benefit and can be far larger than any cash value.

The Decision the Rider Forces: Accelerate, Keep, or Sell

Once a diagnosis is in hand, a household usually has three or four live options and they are not interchangeable.

Accelerate under the rider. Fastest and cheapest to execute. There is no broker, no bidding, no commission, and for a terminal certification the money is usually tax-free. It is normally the right first call when the amount you need is a fraction of the face amount and a survivor still needs the rest of the death benefit. Get the discount or lien terms in writing first.

Keep the policy untouched. If premiums are affordable and someone genuinely depends on the full death benefit, doing nothing is a legitimate answer and often the best one. A rider is an option, not an obligation.

Sell the policy. A settlement replaces the policy with cash and ends the premium obligation entirely. That matters when the premium itself is the problem, when the coverage is no longer needed, or when the rider payout is heavily discounted and the market price is higher. It is the wrong answer when a survivor needs the benefit, when the face amount is small, or when the rider would already cover the need without giving anything up.

Do both in sequence. Accelerating first can reduce or eliminate what a buyer will pay, because the buyer values the remaining death benefit. Get both numbers before you sign either one. To find out what the policy might be worth, send the cover page for a free review or call (732) 978-9575. We provide education and reviews only. For tax questions, ask your CPA; for benefit eligibility questions, ask your state’s SHIP counselor or the relevant agency.

Frequently Asked Questions

Do I have to be dying to use a 101(g) rider?

Not necessarily. The statute has two branches. The terminal illness branch requires a physician certification of death reasonably expected within 24 months, though many contracts tighten that to 12. The chronic illness branch requires certification that you cannot perform two of six activities of daily living for at least 90 days, or that severe cognitive impairment requires substantial supervision.

Is the money I receive taxable?

For a terminally ill insured, a qualifying payment is generally excluded from federal income tax in full. For a chronically ill insured, periodic payments are excluded only up to an indexed daily cap, with amounts above it excluded only to the extent of actual unreimbursed qualified care costs. Confirm the current cap and your own situation with your CPA.

Does using the rider reduce what my family receives?

Yes, always. Depending on the contract, the carrier either pays a discounted present value while removing the full requested amount from the death benefit, records a lien that accrues interest, or reduces the death benefit dollar for dollar. Ask the carrier which method your rider uses and request the exact figures in writing.

Can I use the rider and still sell the policy later?

Sometimes, but the order matters financially. A buyer prices the remaining death benefit, so accelerating first can shrink or eliminate any offer. Ask for the accelerated payout figure and an independent estimate of market value before committing to either path, since one decision constrains the other.

Will the rider cost me anything if I never use it?

Terminal illness riders are frequently included at no separate premium, with the cost recovered through the discount applied at claim. Chronic illness riders written under 101(g) sometimes carry a small charge or a slightly higher cost of insurance. Check the policy schedule and the annual statement to see whether a deduction actually appears.

Where do I find out whether my policy even has one?

Call the carrier’s policyholder service line and request a full copy of the contract including all riders and endorsements, plus a current in-force illustration. Ask directly whether an accelerated death benefit rider is attached, what triggers it, what the maximum acceleration is, and whether a lien or discount applies at payout.

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