CAA 2021 Package Includes Life Insurance Interest Rate Provision

Resources

A collection of documents related to the CAA 2021 spending package, including Rules Committee Print 116-68, is available here.

An article about a health broker compensation provision is available here.

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.

Section 205 would also change a minimum rate used in analyzing life insurance policy premiums to an "applicable guideline premium rate," from 6% today.

Section 205 would make the maximum "applicable minimum test rate" 4%.

If a new benchmark rate called the "Section 7702 applicable federal interest rate" were lower, then the minimum test rate would be either a benchmark rate developed by the National Association of Insurance Commissioners, which is based on corporate bond rates, or the Section 7702 applicable federal interest rate, if the applicable federal interest rate were lower.

The section defines the "Section 7702 applicable federal interest rate" as being a rate based on the "applicable federal mid-term rates." The "applicable federal mid-term rates" are part of a set of interest rate benchmarks that the Internal Revenue Service updates every month.

The "applicable guideline premium rate" would be 2 percentage points higher than the minimum test rate, according to the section text.

Congress has approved the package and sent it to President Donald Trump. The president can choose whether to sign the bill containing the package or veto it. If the president decides to veto the bill, Congress could overturn the veto, send the president a revised bill, or face the prospects that parts of the government could suspend operations after Dec. 28.

— Read Cash Value Accumulation Test or Guideline Premium Test: A Comparison, on ThinkAdvisor.

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