CRS OUTLINES INSURANCE TAX ISSUES.

CRS REPORT FOR CONGRESS

Life insurance is the sharing of risk of financial loss due to death by contracting with others to make up the loss. From this relatively simple contractual arrangement have grown investment and tax-shelter vehicles that take advantage of the tax-exempt status of the investment income or "inside build-up" in life insurance policies. "Universal life," "variable life," and "single-premium" policies are well-known examples. This report discusses in very simple terms the computations of "inside build-up."

                              CONTENTS

A life insurance policy is a contract between an insurance company and a policyholder in which the company agrees to pay an amount of money to someone designated by the policyholder in case of the death of (or the attaining of a given age by) the insured, who is usually but not necessarily the policyholder. In return, the company receives money from the policyholder according to an agreed schedule. This relatively simple contractual arrangement is possible only by a proper balance between what the companies receive from the policyholders and what they pay out in benefits. It is the task of the actuaries to perform the complex and seemingly arcane computations necessary to tell the companies how much it costs to provide a given amount of insurance.

Insurance companies incur the operating costs that are common to all businesses, such as salaries, equipment costs, and the like. But they also face a unique cost, the cost of paying their clients' claims for promised benefits. Providing for the payment of these costs involves holding and investing large amounts of their clients' money, which in turn involves competition with other financial intermediaries and difficult income tax questions. An understanding of these issues begins with an understanding of how life insurance policies are financed.

This report discusses in very simplified terms how the cost of life insurance benefits is determined and how an investment in an insurance policy is valued. Most of the report is devoted to explaining the calculation of the cost of paying benefits, since that is the industry's unique problem. The report also discusses briefly life insurance as a tax-favored investment and the income tax controversy that surrounds (and influences the nature of) insurance products.

WHAT IS LIFE INSURANCE?

Insurance is in essence a means of reducing the risk of financial loss in individual cases by pooling a lot of risks. In life insurance, one is reducing the risk of financial loss due to untimely death. For example, a worker expects to earn enough to provide for his or her family while the children are young. If the worker dies before they grow up or before earning enough, the loss of future earnings can cause hardship. This risk can be reduced by contracting with others to make up part of the lost earnings in case of death.

In any group of people, such as an age group, all will eventually die, but the time of death of any individual member is uncertain. Centuries of death records, however, make it possible to predict with reasonable assurance how many from the group will die in a given year. This ability to predict (for a group) the probability of death forms the basis for insuring against financial loss due to death.

For example, imagine a group of 1,000 people from which we know there will be one death this year. The group could pool its risks by each agreeing to pay $1 as a death benefit to the family of the one who dies. The cost for the survivors is small ($1 each) relative to the benefit for the one who dies (or the beneficiaries, anyway), who will get $999. To make payment more certain, the group could require each member to deposit his $1 with a bank or other trustee who would be responsible for paying the beneficiaries.

If the group knows (or assumes) that its one death will occur at the end of the year, it can take advantage of the fact that a bank will pay interest on deposits and have each member deposit only the amount necessary to grow to a dollar by the end of the year. If the bank were paying 6 percent interest, each group member could deposit (about) 94 cents. The $940 put up by the 1,000 group members plus the (approximately) $60 interest on the 1,000 94-cent accounts will provide the $1,000 needed to pay the death benefit. (Rounding differences are ignored for simplicity's sake -- as are other complications, such as taxes on the interest income.)

In a more realistic world, such a group would need to allow for uncertainties. In particular, its estimate of deaths might be wrong and it might need more than $1,000. It would want a reserve of funds to cover such a possibility. And it would probably want the reserve funds intelligently and safely invested by the trustee. It would also want contracts with the trustee assuring payment of the specified benefits. In other words, it would want an insurance industry.

A life insurance company operates essentially as the trustee described above. Its actuaries group people by age and other characteristics and study death records from the past to see how many in each group are likely to die and thus how much it would cost to pay the benefits. (The process of grouping people by appropriate characteristics and determining their risk of death is called "underwriting.") The company adds its costs, such as administrative, selling, and investment expenses and (perhaps) a return to the owners of the company who supplied the original capital. The result is the price the company will charge for its insurance, called a "premium."

KINDS OF LIFE INSURANCE

Insurance is "life" insurance if it is based on the probability of death (or the converse, the probability of reaching a certain age, "life expectancy"). An insurance contract (called a "policy") under which the company agrees to pay benefits whenever an individual's death occurs is called a "whole-life" policy. If benefits are paid only if death occurs during a given time period, it is called "term" insurance. An "endowment" policy is a sort of combination: if death occurs during the stated term, "death benefits" are paid; if the insured outlives the policy term, the contracted benefits are paid to the policyholder. A special case of term insurance is the "group" policy; this is a policy issued to cover a large number of people with a common connection, such as all employees of a large concern or all members of a labor union, with the cost of insurance calculated based on group rather than on general mortality tables.

The most common way of paying for life insurance policies is through premiums paid annually over the length of the contract, but payment can be spread over some other time period or paid all at once at or near the beginning of the contract (a "single-premium" policy). As discussed below, the type of policy and the method of payment both affect the cost of the insurance protection.

In most cases, one contracts for (buys) an insurance policy on one's own life, with the "insured," the owner of the policy or "policyholder, and the payer of the premiums being the same person. It is possible, however, to take out an insurance policy on someone else's life (if there is an "insurable relationship"), and it is also possible to give ownership of the policy on one's own life to some one else. The policyholder is normally the person who designates who is to receive the benefits, but benefits are distributed according to the terms of the contract, so that, too, can be more complicated. In talking about life insurance, it is usually assumed that the insured person is the policyholder and has designated his or her heirs to receive any death benefits; but it is well to bear in mind that this is not necessarily the case.

THE COST OF LIFE INSURANCE

In the example given above, of 1,000 persons whose probability of death in the first year is 0.001 (1 in 1,000), an insurance company would know that it was going to need $1 for each member of the group in order to pay a $1,000 death benefit. Calculating its premiums as we did above, it would know to charge each member of the group a premium of (about) $0.95 at the beginning of the year so that it could accumulate the needed $1 per member by the end of the year (at 5 percent interest, since insurance companies would probably use a more conservative interest rate than that paid by banks). This $0.95 premium is the cost of the "pure insurance" involved for one year, without adding company costs, selling costs, or a profit for the company's owners. In deciding on the actual premium to charge, the company would start by calculating this premium based on the cost of "pure insurance" and add its other costs and a profit for the owners to that. All of the complex computations of premiums for all the varied products of the life insurance industry start by calculating the "pure insurance" costs.

TERM INSURANCE

As the group of 1,000 original insurees grows older, the probability of death increases, so the cost of paying benefits increases. For example, if in the second year 15 of the 999 surviving group members were expected to die, it would cost each member $14.30 to pay the expected claims for benefits. This is calculated by multiplying the 15 deaths times the $1,000 benefit to be paid for each, which equals $15,000, and dividing by the number of group members at the beginning of the year who will be contributing, which is 999. The result is $15.02, which is the amount needed per group member to pay the expected claims; this amount reduced ("discounted") by one year's interest at 5 percent is $14.30, the amount the company would have to collect from each group member at the beginning of the year. Similar calculations can be made for each year of the expected life of the group.

A tabulation of a population (such as our group) by age showing the number living and the number dying at each age is called a "mortality table." These tables are prepared based on actual death records; insurance companies sometimes prepare their own based on their own experience. State insurance commissioners (life insurance is regulated by the States) have adopted a standard mortality table for use in regulating life insurance company reserve computations, called the "Commissioners' 1980 Standard Ordinary" (or "CSO"). It is based on a standardized population of 10,000,000 and runs from age 0 to 99. (The assumption that no one will live beyond age 99 is a common simplifying assumption in mortality tables.) It is "conservative," in that it assumes a higher death rate at most ages than actually occurs in the general population. (Assuming a higher death rate means the companies basing their reserves on this table are required to have LARGER reserves.) For example, at age 40, the CSO (which is gender-specific) gives death rates per 1,000 of 3.02 for men and 2.42 for women; the actual death rate for the U.S. population at that age was 2.32. ¹

Table 1 shows a constructed "mortality table" for our original group of 1,000 insurees, based on a total life span for this population of 10 years (columns 2 and 3). The cost to insure each life for $1,000 at each age level is calculated as described above, based on this mortality table (column 5).

The "mortality table" in table 1 is partly arbitrary and partly based on actual patterns of deaths. The first year, "age 1," is given an arbitrary death rate of 1 in 1,000, because that is the illustration first used for this hypothetical population above. For years ("ages") 2 through 10, however, the pattern of deaths resembles that of an actual mortality table with each decade compressed into one year. (It was actually based on an earlier version of the CSO.) The compression of the table is to keep the computations to be done later from getting out of hand; a population of 10,000,000 and a life-span of 100 years make for difficult calculations. The principles illustrated, however, are the same, whether the population is 1,000 or 10,000,000.

                               TABLE 1.

The cost of life insurance depends directly on the probability of death. In real mortality tables, as in the 10-year one used in our example, the probability of death increases with age (at least after about age 10) and one-year term insurance eventually gets very expensive. There are, however, life insurance policies that get around the necessity of increasing premiums every year. These "level payment" policies are contracts that run for several years or even for life. They work by averaging the payments over the life of the policy, charging a level annual premium that is more than the actual cost of the insurance (column 5 in table 1) in the policy's early years and less in later years. The excess premiums of the early years are invested and the investment earnings used to help make up for the inadequate premiums in later years.

For example, in table 1, annual $1,000 policies for the first three years would cost $0.95 the first year, $14.30 the second year, and $20.33 the third year (as shown in column 5). A level-premium, 3- year term, $1,000 policy issued the first year, however, could be purchased for $11.50 per year. This price is based on the probability of having to pay the $1,000 during the three years of the contract (i.e., the number of expected deaths), discounting both for the time until payment of the benefits and the time until receipt of the full premiums. (Calculating a level premium is yet another complex computation, one that will not be illustrated here.)

WHOLE LIFE INSURANCE AND "INSIDE BUILD-UP"

A whole life policy promises to pay benefits whenever the insured person dies. The policy "term," therefore, is the insured's life span, however long it may be (or at least up to the limits of the mortality table used). Premium payments are normally made (or calculated as if made) annually over the expected life of the insured or over a very long time, such as 20 years. In such policies, the interest earned on the policyholders' premiums becomes a very significant factor in the policy. (Very long-term term insurance and endowment policies have the same characteristics.)

The use of investment earnings to help pay the cost of death benefits was illustrated in the previous section. There the group of 1,000 insurees deposited a "discounted" amount at the beginning of the year and let it grow by accumulating interest until it was enough to pay the death benefits. For a policy of only one year's duration, investment earnings do not contribute very much to the death benefits. But policies running for a number of years can be expected to accumulate large amounts of such earnings, most of which are by law and by the terms of the contracts attributed to the account of the individual policyholders.

The investment earnings attributed to a long-term policy and the policy's share of the premiums not yet used to pay death benefits are called the policy's "inside build-up" (because they accumulate "inside" the policy on the company's books). This amount (after deducting "surrender charges" or other costs) is the "cash value" or "cash surrender value" that the company will pay to the policyholder if the policy is ended before it matures. It is also the basis for the "loan value," the amount the company will allow the policyholder to borrow using the policy as security.

Table 2 illustrates the workings of a net level premium, whole life policy of $1,000 for the population of 1,000 insurees in our previous example (with survivors paying premiums annually for the entire 10 years). Based on the mortality rates in table l and an assumed interest rate of 5 percent per year, it would take an annual premium of $110.17 to pay death benefits of $1,000 for each of the 1,000 group members. ² The accumulation of premiums and earnings forms a self-liquidating reserve (column 6) that first builds up and then declines, eventually to zero, as it is used to pay claims. Each survivor's policy has attributed to it a share of that reserve, the policy's (gross) "cash value" (column 7).

The assumptions used to construct table 2 are assumptions commonly used to simplify actuarial calculations. It is assumed that all premiums are received at the beginning of the year, that all benefits are paid at the end of the year, and that, consequently, all funds on hand at the beginning of the year and all premiums received during the year earn interest for the entire year. There are a number of ways to do the same basic computations that would yield more accurate results (such as assuming that benefits are paid, on average, in the middle of the year). But the assumptions in table 2 are not uncommon and do not alter the principles illustrated.

The assumption of a conservative interest rate (5 percent in the table) is also in accord with industry practice; in fact, 4 percent might be considered more realistic by today's standards. The industry's principal product could be said to be assured payment, and it is a highly regulated industry at the State level. Both of these factors tend to encourage conservatism in financial planning and practices.

                               TABLE 2.

/b/ By assumption, on December 31 of year 10 accumulated premiums and earnings (column 6) reach $49,000, the cash value of each policy (column 7) reaches $1,000, and all remaining benefits are paid, simultaneously.

Column 7 shows the "inside build-up" of investment income in this whole-life policy. It consists of the premiums and earnings not yet paid out as death benefits, distributed among all the remaining policies. It increases slowly over time until it eventually equals the face value of the policy ($1,000) for the last remaining policies at the end of the table. (In a real-life policy, of course, premiums, earnings, and inside build-up would cover many more years, perhaps 100. So the interest component would be much more important. Also, table 2 does not allow for administrative or selling expenses. Otherwise, column 7 is a realistic illustration of inside build-up.)

THE RETURN ON AN INVESTMENT IN AN INSURANCE POLICY

Table 2 shows that there can be a savings element in a life insurance policy that generates cash value (column 7). An investment in such a life insurance policy is a true investment, generating an increase in the surviving policyholder's assets that can be used for consumption or other investment (by borrowing or canceling the policy) or left to heirs named by the policyholder (on the death of the insured).

But cash value is not the only return from an insurance policy; indeed, it is normally not the principal return. The last surviving policyholders in table 2 have paid $110.17 annually for 10 years, for a total of $1,101.70, and receive $1,000 after 10 years (or their heirs do). If cash savings were the goal, they obviously would have been better off to keep their money in their mattresses. But, of course, the PRINCIPAL product being purchased with those 10 years of premiums was the insurance protection; the cash value is a by- product. (Federal income tax considerations may alter this conclusion; see that section of the report, below.)

The value of the insurance protection can be computed as in the previous section, where it was shown that the cost (or value) of a 1- year term policy was equal to the probability of death during the year times the amount to be paid at death. If the savings element in a policy increases but the face value of the death benefits remains constant, as in the policy illustrated in table 2, the amount of insurance protection decreases. Table 3 shows the amount of insurance protection each year of our $1,000 whole life policy and how much it would cost to obtain a 1-year term policy for that amount each year.

                               TABLE 3.

The three tables presented so far show the essentials of how life insurance is designed to work and how it makes use of investment earnings. The principal purpose of investing in an insurance policy is to cover the risk of financial loss in case of death. That risk increases with age, as can be seen in table l, but savings decrease the risk. The risk of dying without $1,000 is equal to the probability of death multiplied by $1,000 LESS however much of the $1,000 one has been able to save. (Remember, death is not the insurable risk; that risk cannot be shared. Financial loss -- dying without $1,000, e.g. -- is the risk.) So, as shown in table 3, the savings element in a whole life insurance policy actually replaces the insurance element over time; in table 2, the last benefit paid to the last survivor consisted entirely of the policy's own inside build-up of earnings and premiums, just as planned when the price of the insurance was originally determined.

SINGLE PREMIUM AND OTHER INVESTMENT POLICIES

The very precise outcome described in the last section is, in reality, neither expected nor desired by life insurance companies. Policies are priced and reserves calculated based on very conservative assumptions about expected deaths and expected earnings. For most successful life insurance companies most of the time, deaths are always fewer and earnings always larger than assumed in calculating premiums and reserves. The State insurance regulators, whose primary concern is with the safety of the policyholders' money, require conservative assumptions and do not mind if the companies are even more conservative than required -- as they often are. So it is frequently the case that there is even more investment income involved in life insurance policies than the savings element described so far, even without any deliberate effort by the companies or the policyholders to increase it.

But often there is a deliberate intention to increase investment income. Since whole life and very long-term term insurance involve a savings element as a part of the funding mechanism, and since life insurance companies naturally have become sophisticated handlers of their clients' investment funds, the development of products that emphasize an investment return is hardly surprising. Policies that provide some life insurance benefits in case of the insured person's death but also provide an investment return to the policyholder in case the insured lives can seem a great deal more appealing than a policy that pays only on death. In addition, the investment return from a life insurance policy is often taxed lightly or not at all under the federal income tax, which adds to the appeal of investment- type policies.

Endowment policies provide death benefits up to a given age or for a given number of years and then pay benefits to the policyholder if the insured is still alive. These policies have long been a popular way to provide life insurance while the insured is young and retirement benefits if the life insurance is not needed. In recent years, many more-sophisticated products have been marketed, especially those designed to take advantage of the tax benefits of life insurance. These include "variable" policies, which allow the policyholder to choose how much to invest and in what forms, essentially like a mutual fund, and "universal life" policies, which carry the investment portion of the premiums in a separately stated fund from the pure insurance portion. But perhaps the best known of the new products is a very old product that has been given a new twist in the advertisements of some insurance companies, the "single- premium" policy.

All investment-oriented policies have in common that they deliberately increase premiums beyond the amount necessary to pay death benefits (still not considering the amounts necessary to cover company operating expenses and profits). The larger the amount of the premium not needed for current death benefits, the more there is to be invested and the larger the investment element in the policy. This extra investment element can be incorporated into the calculation of premiums illustrated earlier.

MAXIMIZING INVESTMENT RETURNS

A "single premium" policy is a policy priced so that a large premium in the first year (or a few large premiums in the first few years) pays for all the promised benefits for the term of the policy. Any type of policy could be funded this way; for example, the $1,000 whole life policy illustrated in table 2 could have been funded by charging each of the l,000 original insurees $698.00 at the beginning of year one. A single premium is simply the discounted value of all the promised future benefits.

A less cumbersome example than the whole life table can be used to illustrate the points in this section. Table 4 shows a three-year term policy with death benefits of $1,000, issued to our original mortality group from table 1 at year ("age") 1. It is funded by a single premium of $32.70 (rounded) paid by each of the l,000 persons living at the beginning of year 1.

                               TABLE 4.

The $400 premium charged for this policy is calculated according to the same principles illustrated in the other calculations in this report. That is, it is the discounted present value of future benefits to be paid, based on an assumed mortality table. The trick here is that the mortality and interest rate assumptions used are not the ones used before but more "conservative" ones. Companies are always allowed to use assumptions in calculating premiums that assure them BIGGER reserves and LESS risk of bankruptcy than the State regulators allow. So, by assuming that invested funds will earn only 4 percent interest and that deaths will occur in the pattern, 42 in year 1, 100 in year 2, and 300 in year 3, the present value of benefits that would be paid in these circumstances comes to about $400 per insured, which becomes the single premium necessary to fund the promised benefits. ³

A tabulation of premiums collected, benefits paid, and accumulation and liquidation of required reserves for this policy would look just like table 4: reserves and cash values would net to zero in three years. Table 5 is different from the other tables in this report; it shows how the "inside build-up" might REALLY be expected to accumulate rather than how it is assumed to for reserve and premium purposes. (That is, the figures shown are not those used in setting the premiums but rather those that might be available to fund additional benefits for policyholders.) The return on the $400 premiums accumulates more rapidly than death benefits are paid, so instead of declining to zero by the end of the term, the accumulated earnings continue to increase. These earnings are calculated at a more realistic 6 percent rather than the 5 percent assumed in other tables to further increase the return on this investment.

                               TABLE 5.

Calculating the policies' cash values at a more realistic interest rate than that assumed in calculating premiums is also permitted and increases the investment return. That is why 6 percent was used in table 5. Even so, it should be noted that the return on the $400 invested in the policy in table 5 is not overwhelmingly attractive, not counting the value of the insurance protection. A bank account that contained $400 compounded annually at 6 percent would be worth $476.41 at the end of three years -- except for income taxes.

The interest on a bank account would be taxable, while the inside build-up in the insurance policy is not. The income tax treatment of life insurance gives it a significant advantage compared to most comparable investments.

THE INFLUENCE OF FEDERAL INCOME TAXES

The two special rules that give life insurance its tax advantage are:

o income accruing to the policy as cash value, the "inside buildup, is not taxed unless it is distributed for some reason other than the death of the insured; and

o amounts paid because of the death of the insured are not subject to income tax.

In addition, two rules from general tax law allow some policies that have [sic] yet more tax advantages. These are:

o the tax is a tax on NET income, after deducting expenses, which in the case of life insurance means that even distributions prior to death are not taxed until they exceed the premiums paid for them; and

o amounts borrowed are considered transfers of capital that do not directly affect income taxes, which in the case of life insurance means that policy loans are not taxable income to the policyholder, even though they consist entirely of inside build-up.

Death benefits have always been exempt from Federal income tax, largely on humanitarian grounds. As has been said before, the principal purpose of most life insurance is protection against the risk of financial loss. This means that usually the earnings that build up inside a policy are not actually distributed to anyone until the insured person dies, when the beneficiaries are often suffering financial as well as personal distress. In addition, life insurance is, as John Stuart Mill said of morality, a middle-class virtue: the poor cannot afford it and the rich can afford NOT to have it. The exemption of death benefits from Federal income taxation seems to have been influenced by these considerations.

The exemption of inside build-up from taxation is partly because of the desire to exempt life insurance generally, but there is also some legal dispute over when and by whom this income is "realized." The policyholder is usually said to be the "owner" of the income, but his or her ownership rights are normally circumscribed by the terms of the policy contract and perhaps by legal restrictions. The person who usually in the end receives the money is the beneficiary, who, under most policies, has no right at all to it while it is accruing. Such considerations have contributed to the tax exemption of this income.

Tax exemption, however, has led to some serious problems for both the tax system and the industry. Single-premium whole life policies have been heavily advertised by some insurance companies as tax shelter investments. The advertisements suggest that after a few years, when large accumulations of inside build-up are available, the policyholder can "borrow" his accumulated earnings and thus receive distribution of them tax free. Continuing inside build-up on the unborrowed amounts is (ideally) sufficient to pay the interest on the loan, and the principal need never be repaid, because it will simply be subtracted from death benefits when they become due. In other words, the policyholder earns and receives for his or her use tax- free investment income. ⁴

Even endowment or term insurance policies contain tax-favored elements, in that the inside build-up accumulates tax free for many years (although it is taxed when it is withdrawn before death). The tax-favored nature of insurance products is often criticized by other financial intermediaries, such as banks or mutual funds, which must compete with the insurance companies for customers. These issues have led to a number of recent changes in the tax treatment of life insurance and may lead to yet more change. ⁵

The Internal Revenue Code includes a number of tests of life insurance policies in an attempt to restrict the tax advantages to only genuine life insurance. The relationship between cash value and death benefits cannot be too far out of line, which restricts borrowing somewhat, because borrowing reduces death benefits. The relationship between cash value and the true cost of insurance, and between premiums paid and the true cost of insurance, must also meet certain tests. These restrictions inhibit the tax shelter features of life insurance, but they do not eliminate them entirely because of the many ways in which premiums can be calculated. ⁶

"LOADED" PREMIUMS AND COMPANY OPERATIONS

The calculations illustrated in this report cover only the pure insurance costs of life insurance; they show only how an imaginary pot of money would have to be accumulated and divided up over the years to pay the promised benefits, given an assumed pattern of deaths. Calculations of this type are the foundation of the life insurance industry; the first thing that has to be decided in pricing a policy is, obviously, how much money is going to have to be paid out when.

But calculating the "pure insurance" costs is only the bare beginnings of the process of pricing life insurance products. The selling, administrative, and management costs of the companies must be covered, and those investors who supply the reserve funds necessary to guarantee payment of benefits must be paid a return on their investments. So policy premiums contain, in addition to the price of the "pure insurance," amounts necessary to cover these other costs, called a "loading factor" by the industry. These costs are another reason that the "inside build-up" illustrated in the report is unrealistic. For most whole life policies, most of the premium for the first year or two would be used to pay expenses, particularly the sales commission, and there would be no accumulation of cash value to speak of for several years.

Finally, the companies calculate costs with standard mortality tables and other standard assumptions to establish reserves and meet other requirements of the State regulators. But they also do their own classifying of people and their own "underwriting" of risks based on their own assumptions and experience. They have to take into account the likelihood that policies will not be renewed, that policyholders will renege on their commitments, that interest rates will skyrocket again or that financial markets will collapse, and other such non-insurance risks. They have to invest and manage the assets that back up the policy reserves we have been describing in this report. In other words, the calculations described here are only one small part, although an important part, of the normal operations of the insurance industry.

² As mentioned earlier, calculating a net level premium is not simple and will not be illustrated. In effect, the calculation discounts for the fact that the premiums will be received as a stream of future payments and averages them over the years based on how many policyholders will be making payments each year.

³ In this particular case, the author decided to illustrate a premium of $400 and constructed interest rate and mortality assumptions to come out to that figure. How much this differs from industry practice in pricing investment policies is not known.

⁴ See Quinn, Jane Bryant. Single-Premium Life Insurance Is One of the Few Tax Shelters Left. The Washington Post, Washington Business, November 24, 1986. P. 55.

⁵ See, e.g., ACLI Proposes Distribution Limits for Investment- Oriented Policies, Daily Tax Report (No. 71), April 13, 1988, p. G-2 and L-4.

⁶ For a further discussion of tax issues, see U. S. Congress. Joint Committee on Taxation. Background and Issues Relating to the Tax Treatment of Single Premium and Other Investment-Oriented Life Insurance. Joint Committee Print JCS-6-88, March 14, 1988. U. S. Government Printing Office, Washington: 1988. 40 p.