Issuance of stranger-owned life insurance is coming under renewed fire from the insurance industry, especially the Association for Advanced Life Underwriting.
In a policy statement issued at its annual meeting here, the AALU strongly condemned SOLI.
At the same time, a staff official of the National Association of Insurance and Financial Advisors said its board is likely to support the same resolution at its meeting this week.
The concern of the AALU as voiced by several speakers at the meeting is that the soaring federal budget deficit is going to force action on tax “reform” within several years, regardless whether Democrats or Republicans are in power. When that occurs, elimination or reduction in inside buildup will be on the table, as has already been shown by the recommendation of the president’s Commission on Tax Reform in its report last November.
These comments were made by Roger Sutton, AALU president, in his opening remarks, by Ken Kies, AALU legislative counsel and head of the Federal Policy Group, Washington, and Dan Rigby, chairman of the AALU Best Practices Committee.
“Tax reform is going to happen,” Sutton said. “It is only a question of who will be the winners and the losers.”
Sutton added that SOLI is a “potentially abusive transaction,” and its sale “puts our entire industry in jeopardy.
“The greatest lesson I learned is that we must play offense and defense in the face of the unprecedented threats faced by our industry, and the real vulnerability of the ‘three thin threads,’” Sutton said. “This phrase, coined by former AALU President Lawton M. Nease, is one that I think aptly describes the major focus of our efforts–the ‘three thin threads’ are the fundamental tax preferences afforded to life insurance.”
Rigby added, “The AALU position on stranger-owned life insurance recently approved by the board of directors is based upon one overarching concern: If a significant amount of life insurance ultimately benefits those without traditional insurable interest, but rather with an investment return objective, then we risk the product being taxed under investment principles.”