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 The 1982 code decreed that any money withdrawn from an annuity would be considered income first and would therefore be taxable.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
Holding company formed by at least one stock insurance company. This holding company is owned by its stockholders and is usually listed on the New York Stock Exchange or the NASDAQ. In ...
Written agreement that puts insurance coverage into effect. ...
Coverage in the event of threats to injure an insured or damage or destroy his property. ...
Usually term insurance for one year added to a basic life insurance policy. In effect, this increases or decreases the face amount of the basic policy to reflect cost-of-living changes as ...
Actuarial procedure used to determine the cost of protection of a cash value life insurance policy on an annual basis. This cost of protection is developed by the following steps: Cash ...
Documentation of physical fitness by an applicant for insurance. Usually this takes the form of a medical examination. Group plans (life, health, disability) require such evidence if the ...
Trust in which a home is transferred directly to the children while the parent (s) remain in the home for a fixed period of time, resulting in a substantially reduced estate tax cost. These ...
Provisions, usually requiring an additional premium, that are appended to an insurance contract. These include waiver of premium (WP), disability income (DI), accidental death clause, ...
Structure under which tax rates increase with increases in income. One way to minimize such taxes is to purchase tax advantaged financial instruments. ...
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