President Obama’s $3.7 trillion 2012 budget proposal released Monday predictably includes some provisions that have the life insurance industry on high alert.
Chief among them is a provision to expand the “pro-rata interest expense disallowance” for corporate-owned life insurance (COLI). This proposal would keep a company from taking an interest deduction up to the amount of the unborrowed cash value of the COLI policy, except in cases in which the insured is a 20% owner of the business, according to a Monday article from Life Insurance Selling sister publication National Underwriter Life and Health. It would cancel out the inside build-up for COLI insureds who are officers, directors or employees. The Obama administration projects this change would raise $7.7 billion by 2021.
The proposed budget’s other key life insurance provision is a cut in the dividends-received deduction (DRD), which would undercut longstanding rules regarding the DRD that are designed to prevent double taxation of corporate earnings.
Both of these provisions were originally included and subsequently removed from the 2010 budget after being rejected by Congress. Monday’s proposed 2012 budget release marks the beginning of a long process, which will undoubtedly include many revisions before the 2012 budget is finalized and adopted.
A quartet of life insurance industry organizations have banded together to voice their opposition to the life insurance-related provisions in the budget. The Association for Advanced Life Underwriting (AALU), Reston, Va.; the American Council of Life Insurers (ACLI), Washington, D.C.; GAMA International, Falls Church, Va.; the National Association of Insurance and Financial Advisors (NAIFA), Falls Church; and the National Association of Independent Life Brokerage Agencies (NAILBA), Fairfax, Va., released a joint statement Monday.
“As an industry that helps 75 million American families and thousands of businesses responsibly plan for their financial futures, the life insurance industry is deeply concerned about provisions in the president’s proposed 2012 budget that amount to new taxes on products that provide security and peace of mind,” the statement begins.