A: Probably, although the IRS has not said for sure.
Most of the actual language inCodeSection101(g) appears to assume that the insured is the owner of the policy on her or his life. As we discussed in the earlier answer, the qualifying benefit under those circumstances is clearly treated as a tax-free death benefit.
It is less clear what Congress and the president intended with regard to the income tax treatment of accelerations where the benefit is payable to another family member who is the owner of the policy—or if the contract is ILIT-owned.
One interpretation is that since the wording of Section 101(g) implies that the insured is the contract owner, any other policyowner would not receive favorable tax treatment.
Another argument—the more compelling one, in our opinion—is that if the government intended for an ILIT to pay income tax on a terminal illness or chronic illness acceleration, it would have said so. The law’s silence on third-party personal ownership means that an ILIT gets the same favorable tax treatment that the insured would.
The fact that business-owned coverage was explicitly singled out for different tax treatment—and ILIT owned coverage was not—lends extra weight to the second position.