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2017 tax reform: advisors and insurers under the gun

By Serge Therrien | August 17 2016 07:00AM

Warning: In September and October 2016, advisors and insurers will begin to frantically race against time to make sure that insurance buyers are not heavily penalized by the new tax rules that will take effect in January 2017. These changes apply to permanent life insurance policies and annuities. Several sources have told The Insurance and Investment Journal (IIJ) that universal life will be particularly hard hit.

By November, it may be too late to submit an insurance application because most insurers will not be able to analyze the risk, check the medical history or require supplementary exams and price the policy before December 31, 2016.

The federal government announced the new tax measures in 2014. Even so, many insurers and MGAs told IIJ that they were worried that advisors would submit new proposals, or even convert policies, within too short a timeframe for them to issue a contract before December 31, 2016. Past that deadline, clients would have to pay more for insurance or lose important tax benefits linked to savings accumulated in policies. For business insurance, the option of accumulating savings in a policy tax-free will evaporate overnight.

A recent announcement from Empire Life stated, “We cannot backdate any policy issued in 2017 to have an effective date in 2016.”

Other warnings to financial advisors about this issue may well multiply in the coming weeks. One managing general agency told IIJ that he believed insurers’ IT systems could well be disrupted or even paralyzed by the expected explosion in urgent applications.

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