Life Insurance Product Changes

Permanent life insurance offers your clients many benefits, including providing a death benefit that is generally received income tax free, as well as tax favored treatment of cash value growth and withdrawals. Section 7702 of the internal revenue code defines the rules about how life insurance qualifies for thest tax benefits. The consolidated appropriations act of 2021 which passed into law in late December 2020, includes a revision to section 7702 for policies issues January 1, 2021 and later.

A key part of the taxation tests is the assumed interest rate used in all calculation prior to January 1, 2021 used the same interest rates used in the 1980’s. The revision amends this fixed rate with variable rates. In general, the new lower rates allow for greater amounts to be paid into insurance policies without negative tax ramifications. For accumulation products, this is great news.

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