Tax Equity And Financial Responsibility Acts Of 1982 And 1983 (TEFRA)

Definition of "Tax equity and financial responsibility acts of 1982 and 1983 (TEFRA)"

James Hoot real estate agent

Written by

James Hootelite badge icon

The RE/MAX Collection

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 The 1982 code decreed that any money withdrawn from an annuity would be considered income first and would therefore be taxable.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.

image of a real estate dictionary page

Have a question or comment?

We're here to help.

*** Your email address will remain confidential.
 

 

Popular Insurance Terms

Losses paid plus positive or negative changes in the year-end loss reserves during that particular year. The total amount includes payments for any old claims as well as new claims, plus ...

Immediate taking-into-account of present interest rates, mortality experience, and expenses in premiums currently charged. This is critical to the formulation of current assumption whole ...

Percentage of confidence in a finding. For example, if an insurance company's total loss reserves should be $10,000,000 in order to attain an 80% confidence level that enough money will be ...

Present value of future benefits. This type of reserve would be applicable for single premium life insurance, paid-up insurance, single premium annuity, and a paid-up annuity. ...

Condition of real or personal property when it is damaged or destroyed to such an extent that it cannot be rebuilt or repaired to equal its condition prior to the loss. ...

Basis for calculating life insurance premiums and benefits using current interest and mortality rates, rather than historic rates. Current assumptions are critical to interest-sensitive ...

Total premiums received by a property and liability insurance company without any adjustments for the ceding of any portion of these premiums to the reinsurer. ...

Point in time when a term life insurance policy terminates its coverage. ...

Trading of stock to enhance portfolio performance and reduce taxes. This practice is followed when the investor has accumulated losses on stocks and sells these stocks in order to use the ...

Popular Insurance Questions