Obama Budget a Bitter Pill for Life Insurers

"Many businesses use COLI to protect against financial or job loss stemming from the death of owners or key employees," the statement said.

It added that COLI is also used to ensure business continuation. "In addition, COLI is a widely-used funding mechanism for employee and retiree benefits," the statement said, adding that "Congress affirmed the benefits and tax treatment of COLI and assured its responsible use in bi-partisan legislation enacted in 2006."

Meanwhile, IRI president and CEO Cathy Weatherford said that "the tax-deferred status of annuities has been pivotal in helping middle-income Americans utilize lifetime income strategies as part of their retirement savings plan."

She said that removing this incentive would not necessarily increase tax revenue, but certainly would add a new barrier that would prevent Americans from attaining lifetime income coverage.

Analysts point out that the budget, as proposed, has virtually no chance of being enacted in law.

"The President has made these proposals the last two years," said Ryan Schoen and Sam Leaman of Washington Analysis, "and they have not gained traction on either side of the Hill, even in the Democratically controlled Congress in 2010."