Single Premium Life Insurance

  • SPL - Single Premium Life
  • SPWL - Single Premium Whole Life 
  • 1988 0315 - GOV (House) - Investment Uses of Life Insurance, Charles Rangel (D-NY)
  • 1988 0325 - GOV (Senate) - Tax Treatment of Single-Premium Life Insurance, Max Baucus, (D-MT)  ---  [BonkNote]
  • LIRP - Life Insurance Retirement Plan
  • In the early years of Single Premium Life (endowments), producers sold the heck out of them.
    • It took a while before the feds figured out they were being used as tax-shelters.
  • That epiphany led to the resurrection of the decades old debate about taxing the inside build-up in a life insurance contract, a war NAIFA has been fighting since 1913.
  • And won every battle.

2017 0803 - NAIFA-Washington - IFAPAC and MEC, by Richard Ek, NAIFA member since 1975 - [link]

  • The tax law wounded single premium whole life (notice that I didn't say killed it), and has moved many away from the single premium life business. 

--   Timothy C. Pfeifer

1990 - SOA - Life Product Development Update, Society of Actuaries - 38p

  • 1999 - LC - Greenberg v. Life Ins. Co. of Virginia - [GoogleScholar]
    • re: Single Premium Life Insurance Policy
    • 177 F. 3d 507 - Court of Appeals, 6th Circuit
    • Under this second theory, Greenberg and Rossmann contend that Life of Virginia's agent, using misleading policy illustrations, falsely represented to them that no further premium payments would be required for their policies beyond the single initial premium payment ...
  • 1970s / 1980s - NAIC Proceedings
    • Special Plans
    • Valuation / Nonforfeiture
    • UAONP Task Force - UNIVERSAL AND OTHER NEW PLANS (A) TASK FORCE
  • 1986-2, NAIC Proceedings
    • p585 - Single Premium Life Insurance Concerns (Attachment One-F)
  • 1987-1, NAIC Proceedings
    • 1986 1208 - p46 - 2. Adopted recommendations to delete modified guaranteed life insurance plans project from the task force agenda and reprioritize single premium life topic to number one category.
    •  p510 - 4j. Single Premium Life Concerns - This proposed project concerns various questions regarding reserves and nonforfeiture values for single premium whole life insurance plans. One of these questions would involve proper reserves for such plans which contain bailout provisions. For such plans, a guideline analogous to that concerning annuities with a bail-out provision is needed.
  • 1988-2, NAIC Proceedings
    • p410 - Letter - from Douglas C. Doll, Chairman, Universal Life Task Force - Paid-Up Option - In our June 1987 report, we waffled on whether a paid-up option should be required on flexible premium products. As mentioned earlier, there are technical arguments that none is required because premium default does not occur. However, the intent of the SNFL appears to require it. We are not opposed to the paid-up option requirement. We do have several comments and questions, as follows:
      • Would single premium life be affected? 
  • 1988-2, NAIC Proceedings
    • p465 - d. Study issues involving reserves and nonforfeiture values of single premium life insurance.
      • It was indicated that the Life and Health Actuarial Task Force has made no progress on this particular item.
        • John Montgomery (CA) - commented that this is a new product which is being affected by recent actions of the Internal Revenue Service and Congress in taxing the inside build-up.
      • Discussion followed on other new products/consumer concerns. Corporate-owned leveraged life insurance was identified as a serious concern. A corporation issues a policy on an individual with the corporation as owner of the policy and benefits payable to the corporation. The policy is used as funding mechanism for post retirement benefits for employees and may be issued on either a group or individual basis. The policies may or may not be issued on a "key man" basis. The premiums are large premiums because they are funding an ordinary life policy. The money flows into the company and tax advantages are made of the inside build-up. Questions arise as to whose benefit the policy is purchased and whether a group deposit should be made by those administering the fund. Mr. Montgomery indicated that these questions may be legal questions. The Actuarial Task Force indicated that it would charge someone to address this issue and will report at the Universal and Other New Plans Task Force meeting in New York (June 1988).
      • Another issue involves setting aside additional reserves for AIDS. The Actuarial Task Force also will be reporting to the Life Insurance (A) Committee on this. The Actuarial Task Force also will report to the Universal Task Force on whole life policies without cash values.
      • It was suggested that Actuarial Guideline IV be revised to address the type of policy in which early premiums are so low that they do not support the value of the policy. The problem is that there may be atypical lapses, i.e. not enough people to pay the more expensive premium to support the benefits.
      • Another item concerning certain life insurance plans with increasing death benefits was identified as a potential problem. It was noted that Michigan has unlimited death benefit increases which are related to the consumer price index which applies to single premium life policies. Ted Becker suggested that the Task Force consider assigning this issue to the Actuarial Task Force.
  • 1989-1, NAIC Proceedings
    • Priority 1 Projects - Life Insurance (A) Committee
      • 4j Special Plans - Single Premium Life Insurance Concerns (PD Task Force) (On hold)
  • 1990-1A, NAIC Proceedings
    • p451 - 3. Report of Life and Health Actuarial (Technical) Task Force
      • John Montgomery (Calif.) presented the report of the task force and highlighted work they are currently undertaking in the following areas:
        • 3) Project 4j "Single Premium Life Insurance Concerns." Because of limited interest in this area, the Actuarial Task Force is recommending that this item be removed from its agenda.
  • 2012 - LC - BERNICE F. BAMBULIS vs. PROTECTIVE LIFE INSURANCE CO.
    • Civil Action No. 11-2256
    • United States District Court, E.D. Louisiana.
    • 2012 1211 - [Google Scholar]
      • This action arose over the termination of a life insurance policy and an alleged misunderstanding over the tax consequences of that closure.
      • On June 20, 1988, Kemper Investors Life Insurance Company ("Kemper") issued a single-premium life insurance policy to Bambulis. (Rec. Doc. No. 26-1, at 1).
      • Along with the Surrender Form, Plaintiff enclosed a letter to Kemper, indicating her belief that no tax should be owed for the surrender of the Policy because the Policy was purchased with the proceeds of a 401(k).
      • Accordingly, for the reasons stated above, IT IS ORDERED that Defendant's Motion for Summary Judgment (Rec. Doc. No. 26) be GRANTED.
  • The life insurance industry scored a major victory over House Ways and Means Committee Chairman Dan Rostenkowski (D-Ill.) yesterday as the committee rejected his proposal to sharply cut back one of the few remaining shelters in the federal tax code.
  • Rostenkowski had called for removing the chief tax advantage now available to investors in so-called single-premium life insurance policies, which have been heavily touted by the industry as tax-reduction mechanisms.
  • The cutback the committee adopted still goes further than the industry had hoped, but Rostenkowski and other critics of the policies expressed concern that abuses would continue nonetheless.
  • Before the vote, Rostenkowski called the single-premium policies "an affront to the 1986 act," which removed many tax benefits from the tax code, and "an abuse that must be corrected."

1988 0630 - The Washington Post - Rostenkowski Loses Bid To Get Insurance Tax, by Albert B. Crenshaw - [link]

  • 1985 - SOA - Single Premium Deferred Annuities and Single Premium Whole Life Products, Society of Actuaries - 24p
  • 1987 10 - GAO - Taxation of Single Premium Life Insurance - Briefing Report to the Honorable Fortney H. (Pete) Stark (D-CA), House of Representatives - 38p
  • 1987 - SOA - Methods of Underwriting and Considerations In Pricing, Society of Actuaries - 40p
  • 1987 - SOA - Single-Premium Whole Life Insurance (SPWL), by Gary E. Dahlman, Society of Actuaries - 3p
  • 1987 - SOA - Single Premium Life and Annuity Products, Society of Actuaries - 22p

  • 1988 0315 - GAO - Testimony - Taxation of Single Premium Life Insurance, General Accounting Office - 15p

  • govinfo.gov/app/details/CFR-2020-title26-vol4/CFR-2020-title26-vol4-sec1-264-2/context
  • 1988 0315 - JCT - Background and Issues Relating to the Tax Treatment of Single Premium and Other Investment-Oriented Life Insurance, jcs-6-88-3245 - 42p

  • 1988 0315 - GAO - Testimony - Taxation of Single Premium Life Insurance - 15p

  • 1988 0325 - GOV (Senate) - Tax Treatment of Single-Premium Life Insurance, (CSPAN) Single Premium Life Insurance, Max Baucus, (D-MT)  ---  [BonkNote]
  • 1993 - SOA -  The Valuation Actuary - An Overview of 1993 Developments - PRACTICE NOTE 1993-4 - vasp931 - 146p
    • Q: What approaches to modeling interest rates are included in current actuarial practice?
      A: Approaches currently used to represent interest rates in actuarial models may be broadly categorized as deterministic and stochastic. The most familiar deterministic approach is a single interest rate model, in which projections are made and present values are calculated using a single interest rate. A slight generalization of this approach is the single scenario method, in which a series of interest rates are used for future years, such as one rate for 15 years and another rate thereafter. A second deterministic approach is the multiple fixed scenario method. In this approach, several scenarios (series of future interest rates) are used. An example of this approach is the "New York Seven" scenarios, which are required for filings under New York Regulation 126. These are also the basic seven scenarios stated in the NAIC Model Actuarial Opinion and Memorandum Regulation (the Model Regulation). The multiple fixed scenario method can be further generalized by constructing yield curve scenarios (series of future yield
      curves).
    • Stochastic methods generally fall into two categories: random scenario models and option pricing models.
  • (p151) - Written Statement of the Connecticut Mutual Life Insurance Company
    • Single premium sales grew from 1984 through 1987 from just over $1 billion of premium to just under $10 billion, approximately doubling the sales for each preceding year.
      • More astounding, perhaps, is the fact that single premium sales from a small fraction of new premium for all forms of insurance to virtually rival sales of all other forms of insurance combined - which approximated $10 billion in 1987.
    • More important, perhaps, are the facts cited in the GAO testimony indicating that more than half of single premium sales during 1986 were attributable to stockbrokers.  

1988 0325 - GOV (Senate) - Tax Treatment of Single-Premium Life Insurance, (CSPAN) Single Premium Life Insurance, Max Baucus, (D-MT)  ---  [BonkNote]

  • The SPI product may be marketed as a superior, hybrid SPDA: "an investment grade single premium product," according to one brochure. Alternatively, the SPI may be sold with high premiums as an estate planning vehicle for the wealthy individual.
  • Currently, this second alternative would be unusual, but agents may find such a market niche at the expense of the insurer with casual underwriting.
  • The wealthy individual who is slightly substandard would be an ideal prospect from the agent perspective.

1985 - SOA - Single Premium Deferred Annuities and Single Premium Whole Life Products, Society of Actuaries - 24p

  • Another old but little-used product is making a comeback.
    • Single premium whole life insurance (SPWL) with minimal death benefits and current market interest credits is being sold in considerable volume, particularly in the securities brokerage market.
    • Many general agency and brokerage life insurers have also introduced SPWL products recently.
    • SPWL sales have accelerated rapidly since the passage of the Tax Reform Act of 1986.
    • While the Tax Act eliminated or significantly reduced the attractiveness of many past popular tax shelters, life insurance was left relatively untouched.

1987 - SOA - Single-Premium Whole Life Insurance (SPWL), by Gary E. Dahlman, Society of Actuaries - 3p

  • Michael WINTERFIELD: I will take one shot at the change in the marketing of the product. I think the majority of individuals who are buying single premium life insurance are interested at some point in time in exercising the distribution right -- and having some potential to get them tax-free is very important. I think we are looking at loan rates which will increase very much over time. Most of us haven't seen particularly high loan rates in the first 2-3 years. Many people who are buying are looking forward to taking loans out after 5-10 years, 15 years, or whenever they reach a retirement age.
    • With that in mind, I think the distribution side is tightened up. I would see many people not purchasing single premium life insurance, but probably in many of these cases switching over to an SPDA, which would still be perceived as having some advantage. I would agree with comments that Paul had made earlier in that area.
  • Paul LEFEVRE: We feel maybe about 20% of our single premium whole life customers are buying the product with the express idea that they are going to take annual loan distributions or take advantage of the so-called "take your income out tax-free-type approach."
    • The question that alludes to what you are saying is, in addition to those people, how many people find the product attractive because they know they can get at their money? I don't know what that is.

1987 - SOA - Single Premium Life and Annuity Products, Society of Actuaries - 22p

  • HAROLD G. INGRAHAM JR.: There's been no shortage of proposals pending before Congress about the investment war and alleged tax avoidance abuses of single premium life insurance products.
    • The government wants to raise between $20 billion and $60 billion of new revenue and the life insurance industry is apparently being targeted for about one-third of this budget increase.
      • So the issue for the industry is one of damage control at best.
    • There's no question that Congress, on some basis, is going to zap single premium life policies, whether they be single premium whole life, single premium universal life, or single premium variable life.
      • They regard these policies as essentially tax shelters supported by small death benefits.
      • And the key issue is the relationship of death benefits to cash values which inexorably leads you to reconsider the definitions of life insurance in Section 7702 of the Internal Revenue Code.

1988 - SOA - Current Topics For Individual Life And Annuity Product Development, Society of Actuaries - 16p

 Product Design And Marketing Under Section 7702A
Product Design And Marketing Under Section 7702A This session discussion is about SPWL: Is ... marketing point of view. With respect to single premium whole life (SPWL), we're seeing sales drop. Premium ...

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  • Authors: Application Administrator, Christian J DesRochers, R Richard Retticker
  • Date: Oct 1989
  • The second change in 1989 was the addition of certain single premium whole life contacts to the scope of Regulation 126 filings. Single premium whole life contracts which are defacto single premium deferred annuities (SPDAs) must be included in the Regulation 126 reserve testing.

--  Arthur V. Anderson, consulting actuary with Milliman and Robertson.

1990 - SOA - Tax Cash-Flow Projections, Society of Actuaries - 22p

  • I went to a company that did not want term, but wanted to come up with single-premium whole life. And this was before the tax law made the product less competitive than annuities. Prior to TEFRA, single-premium whole life had no limit as to how low the face amount could be. At that time, the single-premium whole life was much more tax efficient than annuities or any other investment product, Sales went from $3 to $100 million in a year, But the paperwork was not overwhelming. The increase in staff was minimal. There was a strain on the staff, but apparently we all understood the nature of term, which accounts for underwriting time and a tremendous amount of paperwork. There was much less work associated with investment products. Let's step back for a minute and try and analyze what has happened.
  • Like all case studies, there are principles to be learned. The following are several principles that I have learned. Principle number one, if a company wants its sales to go to the roof, hire me, Larry Silkes.

--  Larry Silkes, is a consulting actuary with Mercer. He's been chief actuary at William Penn and senior vice president and product actuary at National Benefit

1991 - SOA - Expense Strategy and Pricing Considerations, Society of Actuaries - 18p

  • We have a bank client in Texas that is a good model for us. We have put through 35 investment counselors, and they're selling a single-premium whole life product, an annuity look-alike product, a replacement for the chronic annuity buyer who’s been wandering in and out of the branch for years, who is being sold fixed annuities. We have now just recently hired about four insurance specialists to pyramid on top of that. Our investment counselors are all very comfortable selling that product, and that bank will sell quite a bit of that product for us this year. Now they are more comfortable with understanding and identifying a need, recognizing a long-term-care opportunity, recognizing a permanent insurance opportunity, and so we've seen a nice migration there. The challenge is to be patient enough to integrate with existing distribution channels; we think that's key. Obviously, I've said before that I think the focus is really on packaging, as opposed to features

--  John K. Hillman, not a member of the sponsoring organizations, is President of Philadelphia Financial Group in Blue Bell, PA

1997 - SOA - Bank Alliance Niche for Insurers, Society of Actuaries - 22p