Tax on Insurance Buildup

8 Pages Posted: 9 Dec 2009

See all articles by Calvin H. Johnson

Calvin H. Johnson

University of Texas at Austin - School of Law

Andy Pike

American University - Washington College of Law

Eric A. Lustig

New England Law | Boston


Under current law, earnings from an investment in a life insurance contract are exempt from tax. The proposal would tax the investor annually on the internal earnings on the life insurance policy, including earnings to pay for insurance coverage. Life insurance companies would be required to report and withhold tax on the increase in cash surrender value plus the cost of the insurance, less the premiums paid. Actuarial gain — the outcome of a bet without any time value or earnings element — would continue to be tax exempt, however.

The proposal is made as a part of the Shelf Project, a collaboration by tax professionals to develop and perfect proposals to help Congress when it needs to raise revenue. Shelf Project proposals are intended to raise revenue, defend the tax base, follow the money, and improve the rationality and efficiency of the tax system. The tax community can propose, follow, or edit proposals at A longer description of the Shelf Project can be found at ‘‘The Shelf Project: Revenue-Raising Projects That Defend the Tax Base,’’ Tax Notes, Dec. 10, 2007, p. 1077, Doc 2007-22632, 2007 TNT 238-37.

Keywords: tax reform,life insurance

JEL Classification: H20

Suggested Citation

Johnson, Calvin Harsha and Pike, Andrew and Lustig, Eric A., Tax on Insurance Buildup. Tax Notes, Vol. 122, p. 665, February 2, 2009, The Shelf Project, Available at SSRN:

Calvin Harsha Johnson (Contact Author)

University of Texas at Austin - School of Law ( email )

727 East Dean Keeton Street
Austin, TX 78705
United States
512-232-1306 (Phone)
512-232-2399 (Fax)

Andrew Pike

American University - Washington College of Law ( email )

4300 Nebraska Avenue, NW
Washington, DC 20016
United States

Eric A. Lustig

New England Law | Boston ( email )

154 Stuart St.
Boston, MA 02116
United States

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