After successfully fighting off a major challenge to the tax status of whole life insurance, industry representatives are hopeful that 2002 will be a somewhat quieter year on the tax front.
The challenge to the tax treatment of inside buildup came up in the context of repeal of the estate tax, notes David Winston, vice president of government affairs for the National Association of Insurance and Financial Advisors, Falls Church, Va.
The House Ways and Means Committee was set to consider capping the tax-free inside buildup of whole life as a way to pay for a proposed repeal of the estate tax, he says. “We had to react very quickly to defeat it.”
Phil Anderson, senior vice president with the American Council of Life Insurers, says that when the issue arose, the industry launched a major effort to protect whole life insurance for Americans.
Winston notes that NAIFA and ACLI worked closely together in a coordinated effort to defeat the inside buildup proposal.
ACLI, Winston says, set up an 800 number that allowed direct connections to members of Congress. In the six hours before a committee caucus that was considering inside buildup, Winston says, some 6,000 NAIFA members called the 800 number to register their opposition to members of Congress.
Within a few days, he adds, some 24,000 calls were made.
As a result, Winston says, the inside buildup provision was taken out of the legislation and never even proposed during the committees consideration.
“That was the highlight of the year legislatively,” he says.
Anderson adds, “I hope this will put the issue to bed for a while.”
Nonetheless, Anderson notes, the estate tax repeal issue that was the context for the inside buildup controversy was a troubling one for ACLI.
“It was a very difficult issue,” he says. “It required a skilled and well-balanced approach. We walked a very fine line so that we would not be at odds with our policyholders.”
Ultimately, Congress passed legislation that repeals the estate tax for only one year. Under the current law, the estate tax will end on Jan. 1, 2010, but due to a sunset provision, it will return on Jan. 1, 2011.
This has led to calls for Congress to revisit the estate tax issue to provide greater certainty for estate and retirement planning.
Indeed, Winston says, the House was planning to consider legislation to make estate tax repeal permanent, but the tragedy of Sept. 11 knocked the issue off the table for the near future.
Winston adds that other life insurance tax issues could be on the table in 2002 due to the current economic situation. The life insurance industry, he says, will have to monitor new tax bills to assure it is not adversely affected.
“If life insurance products are threatened, NAIFA will take swift, immediate action to counter such proposals,” Winston says.