IRS: Life Insurance is NOT a Financial Service

[DHK]

Huh? I'm waiting for our competition to start saying "See? Even the IRS believes that Life Insurance is NOT a Financial Service!"

You gotta love it when the IRS makes a determination and how others will end up responding to it - just like how "dividends are classified as a return of excess premiums overcharged" or something like that.

Life Insurance Is NOT a Financial Service: New IRS 199A Tax Deduction Regs | ThinkAdvisor

Because of an exclusion included in the IRC Section 199A statutes, owners of businesses involved in “investing and investment management” may not get to use the new TCJA business income deduction.

Marc Cadin, the chief executive officer of AALU, had asked the IRS to declare that the sale of life insurance is not “investing and investment management” for purposes of the new TCJA deduction, and that life insurance products are not investments for purposes of interpreting that deduction.

When you have the CEO of the AALU advocating for this, you know it's in the best interest of the agent, even if it's sure to be misunderstood by haters of our industry.

 

[hunschuld]

Why would you question such an incredible break. I can see many reasons for insurance sales commissions not to be treated like other financial services or money management. the first is you don't manage anything the insurance company does.

 

[DHK]

*I* don't "question" it. I completely understand it. I also know how easily others will misinterpret and twist it to fit their agenda... the same way they say that "dividends are just an over-charge of premium" without really understanding the true reasons for this determination.

 

[adjusterjack]

it's sure to be misunderstood by haters of our industry.

Why?

Do life insurance agents purport to provide "financial services" or call themselves “investing and investment management”?

 

[DHK]

There are other "professionals" who like to denigrate life insurance agents as not being "real advisors", so this is just another arrow in their quivers for those who like to read things for their own confirmation bias.

 

[Tahoe Ray]

There are other "professionals" who like to denigrate life insurance agents as not being "real advisors", so this is just another arrow in their quivers for those who like to read things for their own confirmation bias.

That's fine...I'd rather pay less in taxes than be able to "hold something over" on another professional.

 

[hunschuld]

*I* don't "question" it. I completely understand it. I also know how easily others will misinterpret and twist it to fit their agenda... the same way they say that "dividends are just an over-charge of premium" without really understanding the true reasons for this determination.

Sorry just what I got from the tone of your post.
Interesting though. I teach CE to CPA's and Attorneys plus insurance agents. I have been in the industry 34 years. I place millions of dollars in insurance products every year and in all that time no one has every brought up the tax treatment of dividends as a way to attach insurance agents.

Insurance agents are not financial advisors . They aren't licensed as financial advisors. they are only supposed to sell insurance products.
Treating dividends as a return of excess premium was the greatest lobbying act ever done by an industry. The greatest gift for insurance agents has just been given to us.
Best to accept the classification and walk away.
If anyone ever does attack the insurance agent bed on this I for one would have a hard time stopping a huge grin from breaking out.

 

[DHK]

Insurance agents are not financial advisors . They aren't licensed as financial advisors. they are only supposed to sell insurance products.

Products one sells vs problems one solves.
Most people believe that insurance agents should only sell products based on a presentation of "features, benefits, price, do you wanna buy?" model. Which is very limited and keeps the client in the "financial planning" mode to determine how this contract can (or won't) fit into their financial situation.

The most advanced insurance agents go deeper into their client's needs, wants, and current financial situation to give overall financial advice for their situation and structure life insurance and annuities to fit their situation. That's exactly why these kinds of courses are included in the CLU designation studies, so you can use that information on insurance, taxes, retirement, and estate planning to help people make more informed decisions.

Financial advice does not have to include advice on securities, which clearly is in the realm of RIAs/IARs and registered representatives and should only be done by those properly licensed and registered as such.

The term "financial advisor" is still a nebulous term. It's not regulated (yet). There are insurance agents, registered reps, and registered investment advisers (RIAs) with investment advisor representatives (IARs).

In fact, I prefer to use the term "Fiduciary Securities Advisor" when describing those who are RIAs/IARs. They seem to have usurped the notion that "only WE can give you advice on everything and everyone else is just a salesman". Not so. They are simply held to a fiduciary standard regarding securities recommendations and advice. Everything else is considered an "outside business activity".

We'll see if "financial advisor" and "financial planner" end up becoming regulated terms in the future.
The other title the SEC should regulate

Treating dividends as a return of excess premium was the greatest lobbying act ever done by an industry. The greatest gift for insurance agents has just been given to us.

Agreed.

 

[Rob Lion]

I still don't understand how all this works someone explain this to me in simple terms lol.

 

[Tahoe Ray]

I still don't understand how all this works someone explain this to me in simple terms lol.

There is a new tax deduction of 20% for self-employed on business income.

Financial advisors will be capped based on earnings (due to a jobs classification) whereas insurance agents will not. (this isn't 100% accurate but it's the gist).