U.S. Rep. Ron Wyden (D-OR), chair of the Senate Finance Committee, released draft legislation that seeks to close a tax loophole.
The loophole is used to shelter income from taxes through the use of private placement life insurance (PPLI) contracts. PPLI policies are related in name only to the typical life insurance policies.
Wyden said they are designed to mimic hedge funds and other vehicles for the benefit of sophisticated investors. He added that they are exclusively available to the ultra-wealthy and make up just 0.003 percent of all outstanding life insurance policies.
His bill, the Protecting Proper Life Insurance from Abuse Act, would protect the longstanding, preferential tax treatment of traditional life insurance. It would make no changes to the typical life insurance plans that most families use for financial security.
“Life insurance is an essential source of financial security for tens of millions of middleclass families in America, so we cannot have a bunch of ultra-rich tax dodgers abusing its special tax treatment to set up tax-free hedge funds and shelter oodles of cash,” Wyden said. “There’s a long tradition of Congress stepping in to prevent the abuse of the preferential tax rules for life insurance, and this bill is the next step in that process. Life insurance is too important to allow it to be twisted into another garden variety tax ripoff for the top.”
The draft legislation was prepared in connection with the report, “Private Placement Life Insurance: A Tax Shelter for the Ultra-Wealthy masquerading as Insurance,” issued by the Finance Committee on Feb. 21, 2024.