Levies on the "inside buildup
" of permanent life insurance, non-qualified deferred compensation and corporate-owned life insurance remain the principal threats to the life insurance industry as the House Ways and Means Committee draws up a "blueprint" for tax reform in advance of the Republican National Convention in July.
And, the issue of limits on inside buildup
on insurance policies is not going away.
If it is not estate tax uncertainty, it's threats to inside buildup
. If it's not inside buildup
, it's the possibility of taxing death benefits.
I started to defend the inside buildup
but was interrupted.
Such coupling of a LTC rider with a non-qualified annuity provides a unique opportunity to use a non-qualified annuity for LTC needs since this favorable tax treatment is available even though the benefit payment reduces the annuity contract's cash values (i.e., untaxed inside buildup
within the annuity may be paid out tax-free for LTC expenses).
The inside buildup
under A's life insurance contract immediately prior to the sale to B was $14,000 ($78,000 cash surrender value less $64,000 aggregate premiums paid).
The owners of cash value life insurance and annuity contracts have long been able to defer paying tax on the income accruing inside these products--that is, on the "inside buildup
." (1) Early insurance products provided their contract owners with only a low, guaranteed return close to the risk-free rate of return.
* The owner would be taxed on the inside buildup
in the policy beyond his cost basis.
The repeal of the 20 percent special life insurers' deduction, limitations of loss reserves to the present value of unpaid losses, reduction n the deductibility of unearned premiums, taxation of a portion of certain dividends (those subject to the intercorporate exclusion) and previously tax-exempt securities, and the potential tax on inside buildup
, were aimed directly at the operations of insurers.(1) Stockholders' expectations could have been adversely impacted by the announcement of any one or combination of these provisions as they progressed through the legislative process.
The report found that the law still provides favorable tax treatment of investment income (inside buildup
) earned on qualified life insurance contracts and annuities.
These are items such as tax-exempt interest income (net of allocable carrying costs) and the "inside buildup
" of income in life insurance contracts (net of attributable premiums).
He said that while the Camp proposal did not touch inside buildup
and death benefits, "the industry's holy grail, it did slap the industry extremely hard in all the new ways," such as deferred acquisition costs and on reserve calculations, for example.