Agents And Companies United In Battle Over COLI Taxation Proposal
Life insurance agents and companies are battling the long-awaited attempt by Sen. Jeff Bingaman, D-N.M., to shut down most uses of corporate-owned life insurance.
Bingaman has filed an amendment to the Small Business and Farm Economic Recovery Act that would tax businesses on proceeds from COLI policies if the employee dies more than a year after leaving employment.
Moreover, the amendment would be retroactive. It would apply initially to all policies entered into after July 10, 2002. But two years after enactment, the amendment would apply to all policies.
However, in a modest change to an earlier attempt, the Bingaman amendment would not apply to proceeds that are used to buy back any equity interest in the business owned at death by the insured.
This qualification, industry sources said, appears to be aimed at the issue of business continuation. It would apparently allow a partner in a business, for example, to use the proceeds from a COLI policy to purchase the interest of another partner who dies.
Despite the qualification, agents and companies say they will fight the amendment.
David Winston, vice president of government affairs for the National Association of Insurance and Financial Advisors, says it would effectively eliminate COLI.
Jack Dolan, a spokesman for the ACLI, calls the amendment an “awful idea” that would harm small businesses that rely on COLI to fund employee benefits.
“We will fight to protect this method of funding employee benefits for small businesses that could not afford them otherwise,” he says.
The amendment is scheduled for consideration after press time. For an update, check the National Underwriters internet site at www.nationalunderwriter.com.
In other news, a senior executive with Massachusetts Mutual Life told Congress that the life insurance industry does not have the luxury of time regarding regulatory reform.
“We cannot stress enough the fact that the underlying problems and the need for action are immediate,” says William B. Fisher, vice president and associate general counsel for the Springfield, Mass.-based insurer.
“Because of existing regulatory inefficiencies, the life insurance industry is at a competitive disadvantage today,” he says.
Fishers comments came in a formal statement presented to a House Financial Services Committee roundtable discussion on insurance regulatory modernization.