State policy: What advisors must watch

State legislatures and regulators are quietly reshaping the environment in which financial security professionals operate. At Finseca, we track these developments not as abstract policy debates but as issues that will shape your clients’ planning options and your day-to-day practice.

During a recent member call, I walked members through five state-level trends that deserve a close eye: emerging wealth tax proposals, the impending liquidation of Phoenix Variable Life, Tennessee’s professional privilege tax, new National Association of Insurance Commissioners’ work on fixed indexed annuity illustrations and a first-of-its-kind bill in Louisiana addressing insurable interest on former employees. 

Several states have introduced ambitious wealth-related tax proposals in 2026, ranging from mark-to-market taxes on unrealized gains to net worth taxes and targeted assessments on high net worth individuals. 

Although many of these efforts have run into political headwinds — especially in an election year — one California ballot initiative appears poised for the November ballot. That measure would apply a one-time assessment on individuals with a net worth of more than $1 billion as of Jan. 1, and would apply even if they later leave the state, although the legality of such a back-date remains in question. 

Our concern is not only today’s threshold; historically, frameworks introduced at very high net worth levels are often reduced to increase revenue to the state. Over time, these approaches could influence how states view life insurance and retirement products, including the possibility of assessments touching those assets. Next year will be a pivotal year in seeing how these proposals move forward. 

Phoenix Variable Life rehabilitation

The Phoenix Variable Life situation is another reminder that carrier failures, while rare, still matter at the client level. Phoenix, a Connecticut-domiciled carrier, entered rehabilitation in May 2024 after a significant financial shortfall. 

The Connecticut Insurance Department has now announced that the company will be liquidated by the end of 2026, shifting existing policies into state guaranty association frameworks. In practice, that means death benefits will be subject to state guaranty association caps. Generally, death benefits up to $300,000 are expected to be protected in full, while those above that level will see guarantees capped at $300,000 (whatever the limit is in the state where the insured lives). 

For fixed indexed annuities, the cap is generally $250,000. Advisors with affected clients must understand both the coverage limits and the timeline, with the next major update from the rehabilitator scheduled for June 30.

Other state proposals that impact advisors

Not all the story is about carriers and taxes. In Tennessee, a $400 annual professional privilege tax continues to be a friction point for financial professionals, particularly newer advisors for whom that cost is meaningful. 

A bipartisan effort to phase down and ultimately repeal the tax did not advance during this session due to its estimated $58 million budget impact, but we expect the issue to resurface when Tennessee convenes its first legislative session under a new governor in 2027. Member experiences with the tax — especially where it has constrained recruiting or practice growth — will be critical as we shape the next phase of advocacy. 

Meanwhile, regulators are sharpening their focus on product communication. NAIC launched a new working group devoted to product illustrations, with an initial focus on FIAs. Regulators have flagged instances where proprietary indices are used to project annual returns that do not reflect typical or expected performance. Our position is straightforward: Consumers need accurate and transparent disclosures; they also need continued access to a broad range of products, and any new rules must be workable across carriers and distribution. Advisors with direct experience in this space have a valuable advantage and should be part of shaping that conversation.

Finally, Louisiana passed a bill that would explicitly permit insurable interest on former employees for purposes of bank-owned life insurance, primarily to facilitate 1035 exchanges of underperforming policies. The bill includes guardrails — such as allowing the state insurance department to develop regulations about consent — but it also raises broader questions about insurable interest standards and how future federal guidance might interact with state law.

Taken together, these developments underline a core reality: State policy is no longer background noise for the financial security profession. It is an active front that will shape product design, client conversations and practice economics in the years ahead. 

Melissa Bova joined the Finseca government affairs team in November 2021 as its first vice president of state affairs. She may be contacted at melissa.bova@innfeedback.com.