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 The 1982 code decreed that any money withdrawn from an annuity would be considered income first and would therefore be taxable.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
Expense of soliciting and placing new insurance business on a company's books. It includes agent's commissions, underwriting expenses, medical and credit report fees, and marketing support ...
Table charting relative costs of a group of cash value life insurance policies derived by using the net cost method of comparing costs (traditional net cost method of comparing costs; net ...
Mechanism used by a fidelity and surety insurance company to spread its liability through reinsurance by issuing a surplus treaty as a first layer of coverage, thereby enabling a cedent to ...
process of discovering sources of loss concerning the liability risk faced by individuals and business firms. The first step in risk management is to identify the causes of a loss by ...
Amount of the loss absorbed by an insurance company after deducting any reinsurance applicable to the loss, as well as subrogation and ABANDONMENT AND SALVAGE rights. ...
Formula for a given line of insurance used by property and casualty insurance companies to compare losses and loss adjustment expense with premiums. This shows the amount of each premium ...
Maximum amount of insurance that an insurance company will issue on a particular risk exposure. This limit is used by the insurance company to avoid having to pay for a loss on the exposure ...
Fund that comes into existence because premiums for ordinary life insurance policies in their early years are higher than necessary for the pure cost of protection. These excess premiums, ...
Coverage for an insured firm if its business debtors fail to pay their obligations. The insured firm can be a manufacturer or a service organization but it cannot sell its products or ...
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