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 The 1982 code decreed that any money withdrawn from an annuity would be considered income first and would therefore be taxable.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
Modified collateral split dollar life insurance plan under which the employee purchases and owns a life insurance policy on the employee's own life. The employer makes the unscheduled ...
Status in which an insurance company holds funds of its insureds (the payment of premiums) in trust, and through an insuring agreement promises to make all benefit payments for which it has ...
Reinsurance: surplus reinsurance contracts under which the agreement between an insurer and a re insurer is based on the ceding company's line guide, such that the amount re insured is ...
In property insurance, percentages of basic coverages which may be applied to provide coverage for other real and personal property. For example, under the homeowners INSURANCE POLICY ...
Procedure for offering reduced auto insurance rates to drivers with good records, and imposing higher rates on bad drivers. Typically, premiums are weighted under a system that assigns ...
Clause in a property insurance policy that stipulates that either the insurer or the insured has the right to demand an appraisal in order to determine the monetary damage or loss to an ...
Provision in commercial property coverage under which an insured must report the value of an insured property at periodic intervals in order to preserve coverage up to values reported. In ...
Combination property, liability, and business interruption policy. It is usually written to cover expenses of small and medium size businesses resulting from damage or destruction of ...
Nonparticipating life insurance under which the first few annual premiums are smaller than would be the case under a traditional nonparticipating policy. While the maximum amount of these ...
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