Legislation would change tax treatment of life insurers’ debt investments

Legislation to modernize the taxation of debt investments held by life insurers has been reintroduced in both the House and Senate.

The Secure Family Futures Act is strongly supported the life insurance industry and would repeal the current capital tax treatment of debt investments, such as bonds. Instead, those investments would be subject to regular tax treatment.

The bill would align the tax treatment of life insurance companies' debt holdings with that of other financial institutions.

The bill was first introduced in the House in September 2023 by Rep. Randy Feenstra, R-Iowa, and the following July in the Senate by Sens. Thom Tillis, R-N.C., and Bob Casey, D-Pa. The bill did not pass during the 118^th Congress.

“Current tax law doesn’t recognize how insurance companies are able to meet their obligations to their policy holders, putting unnecessary costs on life insurance and the financial security it brings to families across America,” Feenstra said. “We need to fix this misalignment in our tax code so that life insurers can continue to offer affordable policies.”

Casey lost his 2024 campaign for re-election, so Tillis needed a new bipartisan partner and found one in Sen. Raphael Warnock, D-Ga.

“This commonsense legislation ensures debt investments made by insurance companies are treated equally under our tax code,” Tillis said in a statement. “By making these critical changes, insurance companies will be able to promote economic growth and investment in communities in North Carolina and across our country.”

‘Succeed and thrive’

Life insurance companies make money by investing money they take in, traditionally in safe investments such as bonds. But with interest rates historically low for many years following the 2008 financial crisis insurers sought other investments and private equity partners to generate returns.

The legislation amends IRS code to “exclude debt held by certain insurance companies from capital assets and to extend capital loss carryovers for such companies from 5 years to 10 years.”

Supporters argue that the tax change could lead to lower operational costs for insurers, potentially resulting in more affordable insurance products for consumers.

“Life insurers protect families and help power the American economy,” said David Chavern, president and CEO, American Council of Life Insurers. “The $8 trillion they invest in businesses, infrastructure, and job creation adds life to communities across the United States. And the returns from these investments help families and businesses access the financial protection they need to succeed and thrive.”

Iowa and North Carolina are both home to significant life insurance employment. Iowa’s life insurance industry supports nearly 54,000 jobs and $66 billion in investment.

Principal Financial Group employs nearly 1,000 people across the state of North Carolina, said Chris Payne, senior vice president of government relations for the insurer.

“The proposal to assign ordinary treatment to debt investments, such as bonds, is a pivotal step towards rectifying the existing tax mismatch within the code,” Payne added. “It will pave the way for insurers like us to excel in our primary mission: creating opportunities for families and small businesses to achieve financial security.”

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InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.