NAILBA Perspectives - May/June 2015 - (Page 32)

government affairs The Tax Treatment of Life Insurance Is Appropriate BY KAY DEMPSEY This Government Affairs update is provided by AALU through the NAILBA/ AALU joint venture agreement. F or those of us who are deeply involved in the life insurance business, it is easy to extol the benefits our industry provides to 75 million American families and thousands of businesses nationwide. The life insurance industry has deep expertise in long-term investing and managing longevity risk, and a long record of delivering on its promises-providing protection, financial security, and peaceof-mind. The unique assets provided by life insurers are extremely stable, and offer the flexibility to deal with different risks at different stages of life. Life insurance producers and professionals encourage individuals to think about unpleasant events like their own death or disability, and to plan for their own future, walking them through complicated choices to ensure the right product is chosen. However, when explaining the benefits of life insurance to a broad audience in trade journals and other publications, there can be a tendency to use loose language that mischaracterizes the current tax treatment of life insurance products. For example, many articles describe life insurance products as "tax advantaged" or "tax favored," focusing on the "tax benefits" that these products provide. The simple fact, however, is that life insurance products are taxed appropriately. There is no provision in the Tax Code that excludes, exempts, or deducts inside buildup from gross income. Life insurance 32 perspectives MAY/JUNE 2015 is purchased with after-tax dollars, and the gains on inside buildup are not taxed when held within the contract-consistent with treatment of appreciation on stocks or home values. Furthermore, unlike other capital assets, should policyholders receive the proceeds upon surrender from their policies, they pay ordinary income taxes, not the preferred capital gains tax rate. In other words, life insurance is not "tax favored." It is important to make this distinction because misperceptions about the tax treatment of life insurance are prevalent in Congress. It is generally acknowledged that the US Tax Code is broken, and there is a widespread desire by policymakers on both sides of the aisle to enact comprehensive tax reform. One aspect of these tax reform discussions is eliminating or significantly reducing tax expenditures to simplify the Code and permit broader tax rate cuts. Unfortunately, the Joint Committee on Taxation annually, and incorrectly, labels the tax-deferred status of inside buildup as a tax expenditure-putting life insurance products in the crosshairs. In fact, the life insurance industry faced $60 billion in new taxes under former Chairman Camp's comprehensive tax reform draft. Articles that use phrases such as "tax advantaged," and frame the purchase of life insurance products as a way to avoid paying income taxes, are incorrect and feed into the misperceptions of policymakers. It is particularly critical to explain the tax treatment of life insurance accurately because more Americans need what life insurance offers. Life insurance ownership hit a 50-year low in 2010. In addition, Americans are increasingly unprepared for retirement, and life insurance products are well suited to address the gaps in retirement security many are facing. Good public policy should find ways to encourage the use of life insurance products to help more people and reach a broader audience. It is understandable that life insurance producers focus first and foremost on their day-to-day businesses. The job of distributors is to sell life insurance to clients who need the benefits these products provide, and explaining the positive attributes of individual policies is critical to success. However, given the threats facing the life insurance industry on Capitol Hill, describing the tax characteristics of life insurance products accurately is essential. It is vital to maintain a unified tax treatment message from the life insurance community to counter the false impressions that are prevalent in Washington, DC. We need to be focused on preserving the current, and appropriate, tax treatment of life insurance and developing the best policies to promote access to life insurance products going forward. Continually using inaccurate terminology and narratives about the current tax treatment of life insurance products makes it eminently more difficult to achieve these important policy goals. For more information about the partnership between AALU and NAILBA to provide government affairs updates and advocacy support for NAILBA members and the brokerage community, please visit the NAILBA website at www.nailba.org. http://www.nailba.org

Table of Contents for the Digital Edition of NAILBA Perspectives - May/June 2015

NAILBA Perspectives - May/June 2015
Contents
Chairman’s Corner
CEO Insights
Basic Staff Training: Onboarding Should be Longer than One Day
NAILBA Charitable Foundation
Member Profiles
Mooers Award Nominations
Get Schooled! Ongoing employee Education and Producer Training are Key to a Brokerage Agency’s Success
Agency Successor Networking Group
Life Happens
Reading Ahead
Government Affairs
Calendar of Events
Index of Advertisers

NAILBA Perspectives - May/June 2015