Heroes Sandbox

Congress added cash value accumulation standards for life insurance policies to the Internal Revenue Code in an effort to keep people from calling ordinary investment arrangements life insurance policies.

https://www.thinkadvisor.com/2020/12/22/cca-2021-package-includes-life-insurance-interest-rate-provision/

Representatives from the American Council of Life Insurers said that, if the Heroes Act interest rate rules took effect, the NAIC should consider replacing the fixed 4% interest rate floor for life insurance with an indexed rate that would vary along with the Section 7702 interest rate benchmarks, according to draft meeting minutes, from May 21, that were included in a document packet for the NAIC’s summer national meeting.

  • WSJ - A Small Tax Change Is a Boon for Permanent Life Insurance - Insurers worried that a government rule from 1984 threatened certain products—and sought Washington’s help, Leslie Scism - [link]

forbes.com/sites/steveparrish/2021/01/29/the-year-end-relief-bill-revives-a-retirement-income-planning-idea/?sh=3c1b96573121

  • M Financial Group Vice President of Product Devin LaPlant - "especially considering that during the pandemic, policy owners were understandably pulling their cash values."

Taxes: The tax world on Capitol Hill is active, but so far, there is little in play that is of concern to NAIFA interests. The House passed an infrastructure bill last week that includes some tax-related bond issues. There are tax issues—including the interest rate used in calculating whether a life insurance policy will qualify as life insurance under Internal Revenue Code (IRC) section 7702 and whether insurer-held bonds can be characterized as ordinary rather than capital assets—that will be addressed in the new coronavirus crisis response bill (see below for more details on that). But generally, for us, tax legislation is on the back burner.


It looks like there will be a tax title in the bill. NAIFA is lobbying (in conjunction with and in support of life insurer interests) for the section 7702 tax definition of life insurance interest rate change, and for a change in the rules to allow life insurers to better match their assets and liabilities by recharacterizing insurer-held bonds as ordinary rather than capital assets.

Negotiations are expected to begin on or around July 20, when Congress returns to Washington from its Independence Day recess. The expectation (which may be more hope than expectation) is that the negotiations will go swiftly and smoothly and that a new coronavirus crisis response bill (which may or may not be called CARES 2) will be ready for House and Senate votes by the last week of July.