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 The 1982 code decreed that any money withdrawn from an annuity would be considered income first and would therefore be taxable.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
Same as term Annuity: contract sold by insurance companies that pays a monthly (or quarterly, semiannual, or annual) income benefit for the life of a person (the annuitant), for the lives ...
Signed receipt by policyowner acknowledging that policyowner is in possession of the policy. ...
New rule entitled "Accounting and Reporting for Reinsurance of Short-duration and Long-duration Contracts," which requires the insurance company to report all assets and liabilities ...
Inability to divide a cash value life insurance policy into a savings element and a protection element because, in theory, if the policyowner withdraws a portion or ail of the cash value, ...
Same as term Master policy: single contract coverage on a group basis issued to an employer. Group members receive certificates as evidence of membership summarizing benefits provided. ...
Policy in which an insurer agrees to pay property or liability losses (generally 80-100%) in excess of a specific amount paid on all losses during a policy year. ...
Insured peril in some property insurance policies that encompasses any accidental damage to insured property while being removed to safety from the immediate threat of damage by another ...
Three types of damages can be awarded to a plaintiff: Special Damages reimbursement for out-of-pocket expenses, including medical bills, legal charges, cost of repairing damaged or ...
Rule that provides four requirements for monitoring the independent agent distribution system: The insurance company must be involved in the training of the independent agent. The ...
Have a question or comment?
We're here to help.