Tax Plan May Mean Costlier Life Insurance

American consumers will likely have to pay more for some life insurance policies under the latest budget deal made by Congress and the White House, according to the insurance industry.

Insurers said they are still assessing the impact of the proposal, but more expensive and less valuable life insurance will certainly be a result of the budget deal makers’ decision to impose on life insurers the highest tax increase of any industry. The increase would be about $7 billion to $8 billion over the next five years, industry executives said.

The life insurance industry saw in advance that it was going to get whacked in the deficit reduction maneuvering but couldn’t stop the deal, said Robert Haskell, a vice president with Pacific Mutual Life Insurance Co., Newport Beach. In fact, while the industry mounted a massive lobbying effort, things just got worse, he said.

“No one seemed to have been paying attention,” Haskell said. The industry argued--to no avail--that a big increase on insurers “could not have come at a worse time” given the financial troubles of the savings and loan and banking industries. Insurers are a major source of capital for business development, Haskell said.

The tax increase would result from an extra levy on insurance premiums. The precise impact on companies will depend on the type of insurance sold. For example, the rate would be lower for group life insurance policies and health insurance premiums would be exempt, Haskell said.

The budget proposal also gives life insurers some breaks. It lowers tax rates for certain types of life insurance premiums, and includes a break for small insurers, identified as those with assets of less than $500 million.