Happy (Jewish) New Year

Depending on when you are reading this, it is likely in the first few days of the Jewish New Year (Rosh Hashana). Like January 1st, Rosh Hashana symbolizes a reset, refresh, and new beginnings.

On the topic of new beginnings, one of the greatest lessons I learned early in my career was that you need to be a student of Life Insurance if you want to be successful. The reason – my mentor explained – was that there are always changes, and if you do not understand how Life Insurance works, you will not be able to pivot when necessary. These changes can be regulatory, consumer, or product based.

In honor of the Jewish New Year, I would like to propose, Insurance New Years.

The goal of Insurance New Years is to remind ourselves to take a look around and reevaluate. The following are some possible dates I would suggest based on the impact they had on our industry.

October 1, 1971 – Universal Life Insurance is conceived.

There is no exact date, but the late 1970s into the early 1980s saw widespread adoption of Universal Life Insurance. The concept of UL is credited to George R. Dinney who gave an outline of what was to come in the October 1971 edition of The Actuary (The Newsletter of the Society of Actuaries).

October 22, 1986 – Tax Reform Act of 1986

The Act’s major impacts on Life Insurance included severely limiting the investment component inside of Life Insurance contracts and stripping the ability to utilize current dedications in the purchase of Life Insurance, favoring deferred internal growth.

June 20, 1988 – MEC testing

Less than two years after The Tax Reform Act of 1986 introduced the Guideline Premium Test and Cash Value Accumulation Test, The Miscellaneous Revenue Act of 1988 introduced the 7-Pay Test.

July 1, 2010 – STOLI Outlawed

Stranger-Owned (or Stranger-Originated, depending on who you talk to) Life Insurance was all the rage at the turn of the 21st century. Premiums were rolling in until it was deemed unethical.

September 1, 2015 – AG 49 Goes into Effect

Indexed Universal Life was still in its infancy when carriers began weaponizing illustrations. Actuarial Guideline 49 sought to solve the problem by creating a complex guideline that effectively forced nearly every carrier to max their illustrated crediting rate within 50bps of 6%. This is now being re-considered as carriers have created new products that sidestep AG 49 by introducing further leverage and greater risk to once again weaponize illustrations.

January 1, 2018 – Tax Cuts and Jobs Act

Calculating the taxes payable on a Life Settlement were painful at best. This legislation simplified the calculation which now provides a simple exit strategy that used to be far more cumbersome. The new calculation:
Cash Value up to basis = Tax Free
Cash Value above basis = Capital Gains
Anything above Cash Value = Ordinary Income

If you can think of other important dates, feel free to chime in.

What is most important, it that the Insurance New Year act as our annual reminder that our industry is constantly evolving. In order to do what is best for our clients and prospects we must evolve with it, constantly learning and relearning how to best serve the public. This should also be a reminder that even though we may have done great planning in the past, it does not mean that it holds up to current or future stressors. We should be ever vigilant to make sure our past plans are as secure as our current plans.