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A Small Tax Change Is a Boon for Permanent Life Insurance

a-small-tax-change-is-a-boon-for-permanent-life-insurance

Federal lawmakers’ big year-end spending package includes a little-noticed revision of the tax code that is likely to boost sales of life insurance, particularly for wealthy Americans.

The law lowers a minimum interest rate used to determine whether combination savings and death-benefit policies known as permanent life insurance are too much like investments to qualify for tax advantages granted to insurance. The interest-rate floor was put in place in 1984 to weed out policies that were mostly investment vehicles with a thin layer of insurance. Lowering the rate allows owners to put more in the savings portion.

And it makes it more feasible for insurers to offer policies, since rates have tumbled so far in the past decade that the 1980s-era minimum limit is now well above long-term government-bond yields. That has led insurers to warn they might quit selling some of the policies.

The reduction in the interest-rate assumption was effective Jan.1 on new sales.

A summary by the U.S. House staff said the revision was necessary “to reflect economic realities” and give consumers “access to financial security via permanent life-insurance policies.”

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