The life insurance community continues to face legislative proposals on a host on issues–most notably tax reform–that if not countered by united industry action could result in the loss of the tax-favored treatment of its products.
So warned Marc Cadin, vice president of legislative affairs of the Association for Advanced Life Underwriting, Falls Church, Va., during a session at LIMRA International's Advanced Sales Forum, here.
Cadin said that a restructuring of the federal tax code, which threatens the industry's "three thin threads"–the tax-free inside build-up of policy cash values, income tax-free death benefits, and the ability to remove life insurance from taxable estates–will likely be needed to maintain fiscal solvency amid mounting debt obligations, including rising homeland security costs, prescription drug benefits, Social Security and, most seriously, the "looming crisis" of Medicare. Reform might result, Cadin suggested, in a cap on policy cash values that accumulate tax-free, or in the extending of similar tax incentives to other investment vehicles.
"Any time you start talking about tax reform, life insurance is on the table," said Cadin. "It's very easy to support inside build-up when you have a strong life insurance presence in your [Congressional] district. It's not easy when you don't."
To counteract Congressional pressure for tax reform, he added, the insurance community needs to sharpen its message about the reasons underpinning the tax-favored treatment of its products. Carriers also need to explore ways to better help Americans–particularly the underserved middle class–save for the future using its products. To the end, the AALU has, among other initiatives, commissioned third-party research on the value of life insurance in society and the economy.
Emblematic of the united industry front that will be needed to prevent unwanted tax legislation, said Cadin, is the close collaboration exhibited by the AALU, the American Council of Life Insurers, the National Association of Insurance and Financial Advisors and the National Association of Independent Life Brokerage Agencies during the 3 years leading up to enactment of the COLI best practices provisions contained in the Pension Protection Act of 2006. He noted that such collaboration will remain essential as the industry monitors implementation of the act and "assesses where further guidance may be needed."
The industry will additionally need to guard against revived Congressional attacks on non-qualified deferred compensation plans. Cadin said he expects that a modified version of legislation dropped from an Iraqi supplemental funding bill earlier this year, including a provision that would have capped tax-favored non-qualified deferred compensation at $1 million, will re-emerge in an education funding bill slated for the fourth quarter of 2007. But he questioned whether legislation that includes a revenue-raising component–with the possible exception of the alternative minimum tax-will be enacted during President Bush's remaining time in office.
