Wash Loan

  • I’d like to go through a bit of history and cover some of the challenges that are coming up and see what we might be able to do with them.
    • Let’s start with October 1987, which, in my mind, started a nifty period for the annuities — the “golden age,” as I would call it.
    • There was a period of time, 1985 through most of 1987, when single premium fixed life insurance and single premium variable life insurance were really coming on strong.
      • These products were offering the potential for tax-free income through wash loan features, and the indication was that the SPDA product was going to be left behind. Things changed rather abruptly – within a two-week period.
      • There was a 500-point Dow Jones decline in October of that year, and a big challenge emerged on the tax front with Stark and Rostenkowski. Ultimately, a year later, the tax laws were changed to preclude tax-free income through use of the loan feature.
  • So it was back to basics for agents and stockbrokers. The good, old tax-deferred annuity concept wasn’t that bad after all, so they got re-energized.

—  Michael Winterfield, partner with Ernst & Young in New York City

1991 – SOA – Annuity Product Development Update, Moderator: Philip Polkinghorn, rsa91v17n218 – Society of Actuaries – 22p