Taxation of Single Premium Life Insurance

T-GGD-88-20: Published: Mar 15, 1988. Publicly Released: Mar 15, 1988.

Additional Materials:

Contact:

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

GAO discussed: (1) the sales, features, and tax treatment of single-premium life insurance; and (2) potential approaches for changing the tax-favored status of single-premium life insurance products. GAO found that single-premium life insurance policies: (1) allow one large premium prepayment; (2) combine death benefits with earnings, which accumulate tax-free; (3) allow loans against the policies at little or no cost because the income on the funds offsets the interest charges; and (4) increased 850 percent between 1984 and 1987, from $1 billion to $9.5 billion because of the tax and investment features. GAO also found that: (1) premium sales on new periodic-pay policies grew 20 percent during the same period, from $8.3 billion to $10 billion; (2) because recent legislation resulted in the loss of traditional tax shelters, single-premium life insurance products make good alternatives to certificates of deposit and money market holdings; and (3) these policies seem inconsistent with congressional efforts to constrain tax advantages for investment-oriented life insurance products. GAO believes that Congress may wish to consider legislative remedies to eliminate tax advantages on investment-oriented insurance products that would either tax loans from single-premium policies as income in the year withdrawn or remove favorable tax treatment from policies if loans reduce the death benefits below certain levels.

Sep 13, 2016

Sep 6, 2016

Jul 29, 2016

Jul 7, 2016

Jun 27, 2016

Jun 23, 2016

Apr 19, 2016

Apr 13, 2016

Apr 7, 2016

Mar 28, 2016

Looking for more? Browse all our products here