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Industry Goes All Out To Stop COLI Taxation Legislation

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Industry Goes All Out To Stop COLI Taxation Legislation


The life insurance industry has launched a major effort to sidetrack Senate legislation that would tax the death benefit on corporate-owned life insurance policies.

David F. Woods, CEO of the National Association of Insurance and Financial Advisors, Falls Church, Va., calls the tax proposal an outrageous and unprecedented attack on legitimate uses of life insurance.

He says NAIFA members are also upset that the Senate Finance Committee saw fit to adopt the legislation behind closed doors and without a recorded vote.

Bob Plybon, president of the Association for Advanced Life Underwriting, Falls Church, Va., says the legislation already has put a damper on the marketing of COLI. There is a chill in the marketplace, he says, because of the uncertainty over whether the COLI provision will hold or not.

Plybon notes that the COLI provision applies to all policies sold after Sept. 17, 2003. This means, he says, all those policies would be subject to taxation of the death benefit if the provision becomes law.

The life insurance industry, Plybon notes, including AALU, NAIFA and the American Council of Life Insurers, is working together to educate members of the Senate and House leadership on the importance of COLI in funding employee benefits for thousands of companies.

Together, he says, AALU and NAIFA have generated some 90,000 grass-roots letters to the Senate Finance Committee opposing the COLI provision.

Jack Dolan, a spokesman for ACLI, adds that life insurers are also doing grass-roots lobbying, in addition to making direct phone calls targeted to members of the Finance Committee. ACLI, he adds, also set up a COLI Web site for the industry.

Plybon, Woods and ACLI President Frank Keating also signed a joint letter to members of both the House and Senate outlining their objections to the COLI language.

“The legislation was adopted by the Senate Finance Committee without a hearing on COLI, a topic which has been grossly distorted by sensationalist news stories,” the letter says. “The amendment was misleadingly perceived as a modest change, but instead is an unprecedented tax on life insurance death benefits.”

Plybon says it is too soon to gauge the sentiment in the House for the COLI language. Traditionally, he says, the House has opposed taxation of life insurance death benefits.

The controversial provision is contained in the National Employee Savings and Trust Equity Guaranty Act, legislation that was approved by the Senate Finance Committee on Sept. 17, but which still did not have a bill number at press time.

The provision, sponsored by Sen. Jeff Bingaman, D-N.M., would tax the death benefits on COLI policies covering employees who die more than one year after leaving employment. This treatment would not apply to certain key employee policies, so long as the number of key employees does not exceed 20.

Reproduced from National Underwriter Life & Health/Financial Services Edition, September 26, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.


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