New Tax Act Could Boost Life Settlement Market

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The new Tax Cuts and Jobs Act (TCJA) could lead to a new wave of life insurance policy sales, by simplifying the tax calculation rules for policy sellers.

In 2009, in Revenue Ruling 2009-13, the Internal Revenue Service hurt sales, by requiring policyholders to deduct cost of insurance charges from their policy tax basis.

Many consumers have had no practical way to do that.

TCJA Section 13521 reverses the effects of IRS Revenue Ruling 2009-13 for life settlement transactions entered into after Aug. 25, 2009.

(Related: Proposed Tax Bill Would Clarify Tax Treatment of Life Settlements)

The Life Insurance Settlement Association (LISA) says in a TCJA analysis that TCJA Section 13521 should help policyholders sell their policies, by eliminating the need for them to get cost-of-insurance charge information.

Sen. Bob Casey, D-Pa., tried to help LISA reverse the 2009 revenue with a bill introduced in 2012.

Rep. Pat Tiberi, R-Ohio, has been working with LISA on the issue last year and this year.

Darwin Bayston, LISA’s president, said in a statement accompanying the analysis that the reversing Revenue Ruling 2009-13 will help policyholders who no longer want their policies get more value when they drop their policies.

“We are delighted that Congress has taken this important action to rectify an error in tax policy, which created an unfair burden on sellers of secondary life insurance policies,” Bayston said.

—Read IRS Posts Life Settlement Rulings on ThinkAdvisor.

— Connect with ThinkAdvisor Life/Health on Facebook and Twitter.

Certain firms are expected to benefit from the changes, while others may get mixed results.

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