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customers. Prior to its organization of AFLIC and AFIC in 1983,
petitioner had received and retained a portion of the premium
payments from the sale of the credit life insurance. However,
petitioner was sued by several customers who claimed that because
petitioner received insurance commissions, effectively, the loans
were usurious and unenforceable. Other finance companies were
being sued on this theory as well. The primary purpose for the
formation of the insurance companies was to avoid the legal
problems associated with petitioner’s charging and receiving
premiums from the sale of credit life insurance. AFIC is in the
business of providing property and casualty insurance. AFIC
files consolidated returns with petitioner.
AFLIC is primarily in the business of providing credit life
and disability insurance. AFLIC files its returns separately
from petitioner.2 AFIC and AFLIC continued to exist as wholly
owned subsidiaries of petitioner during the years in issue.
Petitioner gives its customers the option of purchasing credit
insurance for their loans.3 Credit insurance policies offer
protection to the creditor and debtor by providing for payment of
the loan in the event of certain occurrences such as death or
2 Pursuant to sec. 1504(b)(2), AFLIC is not an includable
corporation and therefore is not eligible to file in the
consolidated returns.
3 Petitioner also offers property insurance. We will not
discuss property insurance policies, as they are not relevant to
the issues in this case.
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Last modified: May 25, 2011