Sen. Ron Wyden takes on private placement life insurance with new bill

New legislation from Sen. Ron Wyden, D-Ore., would reclassify and tax life insurance primarily used by the ultra-wealthy.

Wyden, chairman of the Senate Finance Committee for another two weeks, has long had private placement life insurance in his sights. He released a draft proposal this morning, Bloomberg reported, to reclassify private placement life insurance polices and similar annuities as “private placement contracts” if they meet certain criteria.

In February, Wyden released a report on PPLI as a tax shelter for the ultra-wealthy. The report, which characterizes PPLI as a “buy, borrow, die” tax shelter, is highly critical of the uses and tax advantages afforded to the purchasers of such products that are not available to the less affluent.

“The investigation, the first of its kind into PPLI, found that the domestic PPLI industry is now a tax shelter made up of at least $40 billion in policies held by only a few thousand individuals, who have net-worths reaching into the hundreds of millions or billions of dollars,” a news release claimed.

It is unclear what will happen with Wyden’s bill with the new Senate in the hands of incoming majority leader-elect John Thune, R-S.D.

Marc Cadin, CEO of industry trade group Finseca, said his members are strongly opposed to any changes in PPLI.

"We’ve had many meetings with Senator Wyden and his team to emphasize the importance of preserving the core tax treatment of life insurance, and we strongly disagree with the legislation being proposed. This legislation is an attack on all forms of permanent life insurance and, by extension, an attack on holistic financial planning,” Cadin said in a statement. “We look forward to working with the new Congress and the Trump administration to advance policies to move our country forward rather than raising taxes on life insurance.”

A matter of tax fairness

Titled the “Protecting Proper Life Insurance from Abuse Act,” Wyden’s bill would also impose reporting requirements for companies that sell PPLI policies, with fines starting at $1 million for those that fail to report.

Wyden has claimed that his quest to rein in PPLI is a matter of tax fairness. The IRS is “largely unable” to enforce investor control rules in place to prevent the abuse of tax-advantaged financial products like PPLI, his committee said in the February news release.

At the moment, there is no requirement to report ownership of PPLI on a tax return, “allowing wealthy investors to use PPLI to shield lucrative investments in alternative assets from scrutiny by the IRS,” the release said.

“I'm a strong defender of life insurance as a source of financial security for hardworking American families and retirees, but that's not what's going on with these tax-dodging private placement policies that are available only to the ultra-wealthy,” Wyden said. “When you subject these policies to even the slightest bit of scrutiny, it's clear that this is just a tax shelter for the investments of the mega-rich masquerading as life insurance.”

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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.