SOURCE: Life Insurance Settlement Association (LISA)

May 23, 2006 13:54 ET

Association Provides Information on Possible Settlement Taxation

ORLANDO, FL -- (MARKET WIRE) -- May 23, 2006 -- The Life Insurance Settlement Association announced a new public information service that addresses proposed taxation of investment in life settlements. As a public service, LISA will offer regular updates "on proposals which would sharply conflict with the value consumers have found in the settlement of their life insurance," such as that being proposed currently in Congress.

A life settlement is the sale to a third party of an existing life insurance policy for more than its cash surrender value but less than its net death benefit. Such transactions are usually undertaken for the purposes of estate or financial planning.

"This initiative is designed to allow us to communicate with all interested parties about emerging tax proposals which would devalue life insurance for hundreds of thousands of Americans," says M. Bryan Freeman, president of the Association's board.

"Various stakeholders tell us they are aware of and concerned about proposals in (Congressional) tax-writing committees to levy an excise tax of 100 percent on the costs of policy acquisition by investors in settlements," Freeman adds. "These proposals have been identified at various times in recent months in revenue measures passed by the Senate."

As reported in mid-May, Congress has passed tax-cut legislation which left undecided the issue of an earlier (life settlement-related) proposal circulated by tax writers. That proposal, which was included in a measure sent by the Senate to conference committee, would have taxed investor-owned policies, including those owned by charities, at punitive rates. The proposed taxes were to be levied on the investment in the policy, not directly on the seller of a policy, which would have masked the effect of this tax on policy sellers and the public.

"Even with that bit of clever obfuscation, the effect would be no less damaging for consumers," says LISA Executive Director Doug Head. "In fact, the costs were such that there would be few, if any sales in this market as no investment dollars would come into play." He also disputes the Congressional "score" or estimated revenue raised from the tax by the proposal, noting that, the 100 percent tax would effectively stop industry activity and result in no revenue to the U.S. Treasury.

"Right now, this industry brings many millions in taxes (to the Treasury) which would go away if this proposal were to pass," Head says. "Though some think that the 100 percent tax would somehow raise revenue, this is like expecting revenue from a 100 percent tax on investment in gold coins. Every time you buy a coin, you have to give one to the Treasury. Who would buy? The coins have value, but if any investment is taxed at this exorbitant rate, it stops."

Head says LISA will encourage interested persons to sign on to its site for regular updates about the measure as it is considered by Congress. As it stands now, possible "trailer tax cut legislation" -- trailing the original bill, is to be attached to must-pass legislation on pension reform, he notes.

Founded in 1995 and now composed of 108 member companies, the Life Insurance Settlement Association is America's oldest and largest trade association in its industry. LISA's mission is to promote the development, integrity, and reputation of the life settlement industry and to facilitate a competitive market for consumers. For further information: www.lisassociation.org.

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