Newspaper article THE JOURNAL RECORD

Life Insurance Industry Pushes New Shelter in Tax Reform Wake

Newspaper article THE JOURNAL RECORD

Life Insurance Industry Pushes New Shelter in Tax Reform Wake

Article excerpt

NEW YORK - If you're looking for shelter in the wake of tax reform, the life insurance industry would like a word with you.

Actually, four words - ``single premium life insurance'' - which embody an old idea given new life by the Tax Reform Act of 1986.

When you buy a single premium policy, as with conventional life insurance, you get a contract that pays a benefit to your survivors in the event of your death.

But single premium life isn't just life insurance. Instead, it is being marketed these days as a tax-favored savings and investment vehicle with death coverage as an extra kicker.

Its special status arises from the fact that Congress, in overhauling the tax system, kept the so-called ``inside buildup'' of cash values in life insurance policies free from any current tax obligation. Thus, single premium life can work to compound your money like an annuity or an individual retirement account.

But in contrast to IRAs and many other types of tax-deferred vehicles, single premium life permits you to borrow on your account. And most insurers who offer these policies charge very low interest rates - in some cases, no interest at all - when you do so.

Put those features together, and you get an income-producing investment that is designed to compete with bank certificates of deposit, mutual funds, even tax-free municipal bonds.

As the name implies, purchasers of single-premium life buy a policy with a single, up-front payment of $5,000 or more. A typical policy carries a guaranteed interest rate for the first year, or first few years.

After that, the rate can fluctuate, either according to some specified formula or at the discretion of the insurance company.

As the account grows, the policy owner can turn the interest payments into cash by borrowing them, without ever intending to repay the loan. And since money borrowed doesn't count as income, presto! - the income realized this way is free of income tax.

What's more, single premium life, unlike many traditional life insurance policies, is generally offered without a sales charge at the time you buy. …

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