- 50 -
after 15 years was projected to be $498,000, whereas cumulative
positive cash-flow was projected to be $289,263,000. See
appendix B, Cash Flow. Without the tax savings from tax
deductions for policy loan interest and fees, there would have
been a substantial negative cash-flow in each year, and the costs
of maintaining the COLI plan would have greatly exceeded
benefits.
We recognize that one of the normal benefits of life
insurance is the death benefit to be received if the insured dies
before the insured's actuarially determined life expectancy.
Thus, the predictable cost of maintaining life insurance might be
greater than predictable death benefits and still be justified by
the financial protection that insurance provides against the
financial consequences of the unexpected death of the insured.
But as we discuss later, petitioner had no such reason or purpose
for engaging in the 1993 COLI program. Petitioner suggests that
the policies could conceivably produce tax-independent benefits
if some catastrophe were to occur that would produce large,
unexpected death benefits. We are convinced that this was so
improbable as to be unrealistic and therefore had no economic
significance. Indeed, petitioner makes no pretense that it
purchased these policies in anticipation of, or to protect itself
against, a catastrophic event. The policies were on the lives of
36,000 individual employees of various ages who lived in diverse
Page: Previous 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 NextLast modified: May 25, 2011