No. Aflac is supplemental. It pays cash directly to the patient based on several factors.
For instance, every time my mother goes to the chiropractor, Aflac sends her a check for $75.
1 day in ICU = $1000
Transplant = $several thousand
This is outside of anything covered by insurance, and is sent to the policy holder as a check to be used for whatever. That's why in the commercials, they focus on helping you make your car payments or pay your utilities while you're sick or whatever. It has nothing at all to do with what's covered by regular insurance or not.
Premiums are paid by my Mother as it's really her policy and he's just covered.
Does that help?
He currently collects LTD from a policy he had when he was working, but this 'settlement' (can't think of a better word) is quite a bit more than he made in a year when he was working full-time... have no idea what that means as far as tax bracket though.
This one is going to need some research. If it can be classified as a disability payment, and your mother 100% paid the premiums, it shouldn't be taxable. If it cannot be classified as a disability payment or if your mother didn't 100% pay the premiums it gets stickier.
However, for the sake of caution, he should proceed as if it is. I would recommend setting 40% of it aside until it can be determined whether or not he will owe any tax. That will cover both federal and state income taxes with a generous margin of safety.
I am willing to do this research for you. You already know my personal email addy.
I am going to need to know their AGI for 2007. I am going to need to know how much the settlement will be for, and I will need to know exactly what Aflac calls the policy...by name.
I will also need to know for sure if the premiums were paid with pretax or postax dollars. I will probably also have more questions as we go.
Generally supplemental policies are designed to cover whatever regular insurance doesn't cover. Obviously this is a different type of policy than a standard supplemental one. I understand what general kind of policy you mean (I used to have one of those myself) but its been so long since I have dealt with one, tax wise, that I want to make sure that I give you very accurate advice.