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Legislative and Regulatory Issues | Advocacy | NAIFA

Tax Legislative & Regulatory Issues

Insurance Agents and Financial Advisors Support Current Tax Rules for Life Insurance, Annuities, DI and LTC Insurance

New: Americans to Protect Family Security Conference Call

The budget’s in the red,
And I’m so blue.
Spending is sweet,
So I’ll raise taxes on you.


NAIFA is aggressively building its grassroots and grasstops network to ensure that legislators recognize the importance of our products and the peace of mind they provide. To that end, on Friday, February 18, Americans to Protect Family Security hosted a conference call with special guest Tim Hanford, JD, one of NAIFA’s top outside counsels.

During the call, Hanford reviewed the Obama Administration’s proposed budget for fiscal year 2012 and its attempts to target the insurance industry, its products and its policyholders as a way to generate revenue. Listen to the 18-minute call to learn why you should be involved in the public policy process.

Americans to Protect Family Security is a coalition founded by AALU, ACLI, NAIFA, NAILBA, and GAMA International to help educate policy-makers about the role life insurers’ products play in the financial lives of 75 million American families and the importance of our business to the economic health of communities.

Today, 75 million American families count on life insurance, annuities, long-term care and disability income insurance to provide peace of mind, long-term savings and a guarantee of lifetime income when it's time to retire. Historically, Congress has recognized the fundamental value of transferring the financial risk of death, retirement, disability and incapacitation from individuals and businesses to insurance products specifically designed to absorb the risk of dying too soon, living too long or becoming disabled along the way. Insurance agents and financial advisors support Congress in preserving current tax law rules that not only encourage individuals and businesses to plan for long-term financial needs and risks through permanent life insurance and annuities, but also reflect appropriate income tax rules (based on the principle of constructive receipt). Only these vehicles guarantee financial benefits to families or businesses.

Background on Insurance Product Taxation

In fact, starting in 1913, Congress began fashioning an income tax structure that encouraged individuals, and later businesses, to transfer certain financial risks to life insurance and annuities. Deferral of tax liability on accumulating “inside buildup” life insurance policy values is appropriate under the income tax rule of constructive receipt. Policyholders, generally, cannot access policy values without giving up important insurance protection. And under current law, policyholders do pay tax, at ordinary income tax rates, when they take withdrawals in excess of basis.

Further, current tax rules reflect lawmakers’ recognition that the only financial vehicles that are guaranteed to transfer the financial risks of death and longevity are lifelong income protection products such as life insurance and annuities. Thus, the appropriate current tax rules that defer taxation of policy cash until withdrawal makes appealing the long-term retirement savings byproduct of the level premium construction of a life insurance policy. This tax policy has been reviewed several times over the last century, and each time Congress has chosen to preserve the current tax treatment. Indeed, a change in these rules would be a departure from recognized income tax principles, and would act as a significant barrier to the average person’s ability and willingness to carry an adequate amount of permanent life insurance protection.

In addition, Congress must be wary of proposals that would encourage short-term savings and spending at the expense of long-term savings. Savings in permanent life insurance and individual annuities represent more than 10 percent of long-term savings in this county. The tax-neutral rules applicable to life insurance under current law allow individuals and businesses to “lock-up” savings though life insurance and annuities that protect individuals, families and businesses long term.

Capital Formation

Another byproduct of premiums paid for insurance purchases is the substantial capital life insurance values contribute to the country’s capital formation. Our nation has benefited from a storehouse of national long-term investment capital. Permanent life insurance and annuities constitute one of the largest sources of long-term investment capital in the U.S. In fact, life insurance companies rank number one in the purchase of corporate bonds.

Why Congress Needs Revenue: Threats to Tax Treatment of Life Insurance and Annuity Products (and Disability Income and Long-term Care Insurance)

As Congress grapples with budget deficits and how to make the tax code more pro-growth and internationally competitive, “tax expenditures” have become a hot topic on both sides of the aisle.

Inside buildup of life insurance and annuities, retirement savings, employer-provided health insurance, cafeteria plans, and group life, disability, and long-term care insurance are included in the list of “tax expenditures.”

This reality means that threats to the current tax treatment of long-term savings and risk-shifting products are likely to continue for the foreseeable future. The protection afforded by insurance products is an important societal benefit that public policy has consistently validated.

Lawmakers will be confronted with some stark choices. And NAIFA members will be faced with some daunting challenges to ensure that legislators recognize the importance and appropriateness of the long-standing tax treatment of our products.

House Passes Estate Tax Extension Coupled with Statutory “Pay as You Go” Budget Rules (NAIFA GovTalk, December 3, 2009)

White House Tax Reform Panel Delays Report (NAIFA GovTalk, December 3, 2009)

Treasury/IRS Release Annual Guidance Plan (NAIFA GovTalk, December 3, 2009)

IRS Launches Major Audit of 6,000 Companies (NAIFA GovTalk, December 16, 2009)

2009 Tax Agenda in Congress Approaches End Game Stage  (NAIFA GovTalk, October 19, 2009)

NAIFA/Tax Coalition Addresses President’s Economic Recovery Advisory Board on Tax Policy (NAIFA GovTalk, October 19, 2009)

Health Care Bill Give Hints of Future Tax Policy Direction of This Congress  (NAIFA GovTalk, October 19, 2009)

Ways and Means Committee to Consider Three More Tax Bills This Year (NAIFA GovTalk, October 19, 2009)

Obama Administration Proposes New Initiatives for Retirement Security (NAIFA GovTalk, October 1, 2009)

Estate Tax: Congress Prepares to Kick the Can Down the Road (NAIFA GovTalk, October 1, 2009)

Section 529 College Savings Plans-Biden Task Force Recommends Improvements (NAIFA GovTalk, October 1, 2009)

Tax Reform: White House Panel Seeks Ideas, Rangel Proposes Lower Corporate Rate (NAIFA GovTalk, October 1, 2009)

NAIFA-North Carolina Instrumental in Keeping Premium Tax Increase Out of State Budget (NAIFA GovTalk, August 17, 2009)

Key Tax Writers Weigh In On Health Insurance Payfors (NAIFA GovTalk, July 20, 2009)

House Committee OKs Investment Advice Rollback and 401(k) Fee Disclosure Bill (NAIFA GovTalk, July 20, 2009)

401(k) Fee Disclosure Developments: New Bill, Subcommittee Mark-Up (NAIFA GovTalk, June 15, 2009)

Reps. Pomeroy and Brown-Waite Introduce Bill Providing New Lifetime Annuity Tax Incentives (NAIFA GovTalk, June 15, 2009)

Finalization of Investment Advice Rules Delayed Again (NAIFA GovTalk, June 1, 2009)

Struggling Employers Win Relief from Required 401(k) Safe Harbor Plan Contributions (NAIFA GovTalk, June 1, 2009)

IRS Releases Guidance on Employer-Owned Life Insurance Contracts (NAIFA GovTalk, June 1, 2009)

New Detail on Administration Budget Tax Proposals (NAIFA GovTalk, May 15, 2009)

Lawmakers Need Better Understanding of Advisor–Client Relationships (NAIFA GovTalk, May 15, 2009)

Estate Tax Lines Up as High Profile, Pressing Tax Issue (NAIFA GovTalk, May 1, 2009)

House Committee Kicks Off 401(k) Reform Initiative (NAIFA GovTalk, May 1, 2009)

IRS Releases Draft Revenue Procedure and Sample Plan Language for 403(b) Prototype Plans (NAIFA GovTalk, May 1, 2009)

Tax-Based Savings Recovery Plan Offered by House Republicans (NAIFA GovTalk, May 1, 2009)

Budget Process in Congress Casts Shadow Over Health Care and Income and Estate Tax Issues (NAIFA GovTalk, April 1, 2009)

Senate’s Key Tax Writer Proposes Permanent Extension of Estate Tax Rules and Popular Tax Breaks (NAIFA GovTalk, April 1, 2009)

Obama Tax Reform Panel Takes Shape (NAIFA GovTalk, April 1, 2009)

NAIFA Outside Consultants Present Thought Piece on Implications for Life Insurance Trust in Estate Tax Reform (NAIFA GovTalk, April 1, 2009)

Obama Budget Includes Health Reform Funds, Income-Based Taxes (NAIFA GovTalk, March 2, 2009)

Investment Advice Regulations Likely Extended 60 Days (NAIFA GovTalk, February 17, 2009)

Investment Advice Regulations “Finalized” by Department of Labor Obama Budget Includes Health Reform Funds, Income-Based Taxes (NAIFA GovTalk, February 2, 2009)

CBO Outlines Significant Health Insurance Tax Rule Changes (NAIFA GovTalk, January 15, 2009)

House “Pay as You Go” Rules Pose New Challenges in Protecting Insurance (NAIFA GovTalk, January 15, 2009)

NAIFA Members and Clients Have a Lot of Tax Incentives on the Line per Report Released by Congressional Joint Committee on Taxation (NAIFA GovTalk, November 17, 2008)

Insurance Agent and Financial Advisors Assess Election’s Impact on Key Legislative Issues (NAIFA GovTalk Election Edition, November 2008)

Key Committees Exercise Jurisdiction Over Tax Issues (NAIFA GovTalk Election Edition, November 2008)

Congress Focusing on 401(k) and Other Pension Rules (NAIFA GovTalk, November 3, 2008)

Economic Stabilization Legislations Also Includes Tax and Health Provisions (NAIFA GovTalk, October 15, 2008)

House Education and Labor Committee Holds Hearing Examining Losses to Retirement Savings (NAIFA GovTalk, October 15, 2008)

NAIFA, AALU and ACLI Co-Host STOLI “Fly-In” Meeting in Washington, DC (NAIFA GovTalk, October 3, 2008)

NAIFA-California Weighs-in on Attack on Life Insurance Tax Treatment (NAIFA GovTalk, September 18, 2008)

Preparing for “The Gathering Storm” (NAIFA GovTalk, September 2, 2008)

Estate Tax Reform Legislation Points Toward 2009 Action (NAIFA GovTalk, August 1, 2008)

Tax Issues Unresolved as Congress Heads Home for July 4 Recess (NAIFA GovTalk, July 1, 2008)

NAIFA-Ohio Members Play Key Role in Passage of Strong Anti-STOLI Bill in Ohio (NAIFA GovTalk, June 1, 2008)

NAIFA Responds to CA Broker Article on STOLI (NAIFA GovTalk, May 15, 2008)

State Lawmakers Act to Restrict STOLI (NAIFA GovTalk, NAIFA GovTalk, May 15, 2008)

May NAIFA GovPod Discusses 2009 Tax Reform and the Coming “Perfect Storm” (NAIFA GovTalk, May 1, 2008)

Estate Tax Issues Attract Congressional Examination (NAIFA GovTalk, April 15, 2008)

NAIFA and State Associations Prepare for 2009 Tax Battle (NAIFA GovTalk, April 1, 2008)

STOLI Legislation Heats Up in States (NAIFA GovTalk, March 15, 2008)

Senate Budget Debate Frames Future Tax Legislation Including Estate Tax (NAIFA GovTalk, March 15, 2008)

Senate Budget Debate Frames Future Tax Legislation Including Estate Tax (NAIFA GovTalk, March 15, 2008)

Finance Committee Hearing Looks at Replacements to the Estate Tax (NAIFA GovTalk, March 15, 2008)

Many States Consider Legislation Addressing Life Settlements, STOLI (NAIFA GovTalk, February 2, 2008)

President Bush Lays Out Tax, Health Agenda for 2008 (NAIFA GovTalk, February 2, 2008)