Life settlement companies are criticizing life insurers’ plan to ask Congress for an excise tax on life insurance policies that are resold less than 5 years after purchase.
The board of the American Council of Life Insurers, Washington, voted 26-4 with 1 abstention May 8 in favor of exploring the option of imposing a federal excise tax on stranger-owned life insurance, according to individuals familiar with the vote.
The board said premium financing can have a place in the life insurance industry but that the SOLI arrangements in question give parties who are unrelated to the insureds a mechanism for ignoring state insurable interest laws.
“ACLI is addressing the [SOLI] issue at the NAIC and in the states by seeking amendments to the NAIC Viatical Settlements Model Act to address these transactions when they are first arranged,” Whit Cornman, an ACLI spokesman, said in response to questions about the ACLI board vote. “We also are exploring the option of pursuing legislation that would impose a federal excise tax of 100% on the money invested in SOLI transactions.”
The ACLI board voted on the SOLI excise tax measure shortly after the Life Insurance Settlement Association, Orlando, Fla., held its spring meeting in New York and after the National Association of Insurance Commissioners, Kansas City, Mo., held a premium financing hearing in New York.
At the NAIC hearing, critics described SOLI as a mechanism for giving “speculators and investors who have no relationship to insured persons and no interest in their continued good health” the ability to “profit from the insured’s death.”
“Clearly, these types of transactions abuse the social purpose of life insurance, circumvent the letter and spirit of insurable interest laws, and threaten the viability of a product that has provided essential financial security to generations of Americans,” ACLI President Frank Keating told state insurance regulators at the NAIC hearing.