Tax Equity And Financial Responsibility Acts Of 1982 And 1983 (TEFRA)
Legislation that redefined life insurance and raised taxes on life insurance companies. Among the provisions were new rules for some life insurance products, including a definition of flexible premium life insurance, and an increase in life insurance company taxes. Congress was concerned that a policyholder could take a substantial amount, say $1 million, and, after putting a few dollars toward a life insurance premium, put the remainder into a tax-free investment vehicle. One of two tests had to be satisfied for a policy to qualify as life insurance: the cash surrender value policy could not exceed a net single premium, and the death benefit had to represent a certain percentage of the cash value, which declined as the policy-holder got older. For example, at age 40, the death benefit must be 140% of cash value. The second rule closed a loophole on tax-free withdrawals from annuities. Prior to 1982 annuity holders could withdraw their initial premium tax free at any time. The 1982 code decreed that any money withdrawn from an annuity would be considered income first and would therefore be taxable. The older 1959 tax code devised a shorthand formula for determining taxes paid by insurers. The formula worked when interest rates were low, but as they soared, insurers found ways to reduce the increased tax bite. The 1982 code introduced a stopgap measure designed to raise taxes on life insurers by $3 billion.
Popular Insurance Terms
An exception to section 101 (a) (1) OF THE INTERNAL REVENUE CODE tax-exempt Status Of the DEATH BENEFIT in a life insurance policy where the transfer of the interest in the policy by the ...
Same as term Ceding Company: insurance company that transfers a risk to a reinsurance company. ...
The right to purchase insurance without physical examination; the present and past physical condition of the applicant are not considered. ...
Difference between the yield on earning assets and the cost of interest-bearing liabilities. ...
Federal agency that regulates commerce across state lines. The ICC does not oversee insurance, which is subject to regulation by the states according to Public Law 15, McCarran-Ferguson ...
Physical contact of an automobile with another inanimate object resulting in damage to the insured car. Insurance coverage is available to provide protection against this occurrence. ...
Provision in ocean marine cargo policies to limit an insurance company's liability for partial losses; the company has liability only for losses that exceed a stipulated percentage of the ...
Arrangement by which the insured agrees to incur a given degree of variability in the ultimate total costs associated with financing its losses. ...
Part of an ocean marine policy that provides coverage of goods through all of the stages of a journey. Coverage begins when goods leave the warehouse of a shipper, and continues until they ...
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