Summary: In response to a congressional request, GAO provided information on single-premium life insurance, specifically: (1) its tax-favored investment status; (2) its increased sales relative to other life insurance; and (3) potential changes to its tax-favored status.
GAO found that: (1) single-premium life insurance as a tax-favored investment allows individuals to make investment gains without reporting them as taxable income; (2) the sales of single-premium life insurance increased from $1.0 billion to $4.3 billion, while ordinary premium sales increased from $8.3 billion to $9.4 billion; and (3) this growth in sales of single-premium life insurance was a result of congressional efforts to limit the tax-favored status of annuity contracts and individual retirement accounts. GAO believes that, if Congress should decide to change the tax status of single-premium life insurance, it should either: (1) treat loans from these policies in the same manner as distributions from annuity accounts; or (2) change the definition of life insurance so that single-premium contracts would not qualify for favorable tax treatment if the death benefit goes below a certain level.
