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 The 1982 code decreed that any money withdrawn from an annuity would be considered income first and would therefore be taxable.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
Professional designation earned after the successful completion of three national examinations given by the insurance institute of America (IIA). Covers such areas of expertise as ...
Property coverage on a dealer's interest in equipment while it is being installed. Labor and material are protected against such perils as fire, lightning, and windstorm. For example, if an ...
In many health insurance and dental insurance policies, stipulation that, if the estimated cost of a recommended plan of treatment exceeds a specified sum, the insured must submit the plan ...
Act by a company that authorizes an agent to act on its behalf. ...
Situation involving a chance of a loss or no loss, but no chance of gain. For example, either one's home burns or it does not; this risk is insurable. ...
Coverage designed to protect against loss exposures of business firms, as opposed to those of individuals. ...
Extra percent of interest credited to an annuity during the first year that it is in force. This extra amount is above the interest rate to be credited beginning with the second year and ...
Life insurance rate determined by the valuation of company policy reserves. State regulators set strict standards for policy reserves to make certain that life insurers will have enough ...
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 ...
Have a question or comment?
We're here to help.