Tax Insurance 101

In this episode of the “GILTI Conscience” podcast, David Farhat, Nate Carden and Stefane Victor are joined by Mike Gaffney of Atlantic Global Risk to talk about tax insurance and its role in addressing uncertainty in tax laws.

Mike describes the workings of tax insurance, including the length of a typical policy, particularly surrounding a deal, and explored ideas such as deciding what covered tax position to insure and how various jurisdictions come into play.

The conversation takes listeners through the impact that evolving international tax law has had on tax insurance; what multinationals need to consider when exploring a policy; recognizing risk, particularly surrounding BEPS; and tax insurance in an M&A transaction.

Voiceover (00:02):
This is GILTI Conscience. Casual discussions on transfer pricing, tax tradies, and related topics, a podcast from Grand Park Law Group that invites thought leaders and industry experts to discuss pressing transfer pricing issues, international tax reform efforts, and tax administration trends. We also dig into the innovative approaches companies are using to navigate the international tax environment and address the obligation everyone loves to hate. Now, your hosts, Grand Park Law Group partners, David Farhat and Nate Carden.

Nate Carden (00:36):
Everyone, welcome back to another episode of GILTI Conscience. As always, Nate Carden here with David Farhat, Stefane Victor. Today, we’re joined by Mike Gaffney, of Atlantic Global Risk, talking about tax insurance and the impact of the OECD Project, and my favorite topics, BEPS and DEMPE, on tax insurance and how that market works. Mike, welcome to the show.

Michael Gaffney (01:00):
Thanks very much. Wonderful to be here.

Nate Carden (01:02):
So just to kick it off a little bit, could you tell the audience a little bit about the tax insurance market and your perspective on what impact the OECD initiatives have had on it?

Michael Gaffney (01:14):
Sure. I think the product tax insurance is basically there to deal with uncertainty, right? In the tax law where everyone believes that they’re taking the correct position. They probably have gone out and gotten some advice from quality firms like yourself. And nonetheless, depending on what that level of comfort is, it’s not metaphysical certitude, it’s not a hundred percent covered.

(01:37):
Every year, the tax director and the CFO have their hands shaking as they attest on their [inaudible 00:01:43], that their effective tax rate and their books and records are accurate. Nonetheless, even with the should opinion, there is some risk, as we’ve seen in court over the years, the IRS often wins cases where the taxpayers been well advised and they have strong opinions. Nonetheless, that’s not metaphysical certitude that we’re seeking.

(01:59):
The tax insurance product is there effectively the risk transfer mechanism, for a premium depending on the ultimate position that is being covered, but takes that, whatever you want to say, a should opinion or a more likely not, whatever it is, for a premium, of course, there’s a cost to it, for that premium. It basically shifts the downside liability of a covered tax addition from the taxpayers’ financial records to the highly rated insurance company. That’s sort of what the product does.

(02:30):
Going back to my history on Wall Street, it reminds you of early days of cross-border derivatives and security funding where effectively you’re trying to figure out a way to shift risks where you still obviously have an obligation where you hold one position. You’re entering it into a second position to offset the risk and that’s effectively what tax insurance is doing. Obviously, you still have your contentious issue with the taxpayer with the government in question, whether that’s the IRS, the CRA, the HMRC.

(02:56):
What you’re doing is entering into a contract with a second party, an insurance company, through the use of an insurance broker like Atlantic Global Risk. And through that you’re shifting the risk, if and when that tax edition turns pear-shaped, as they would say in England. That’s what the product is there to cover.

Nate Carden (03:15):
So if you are going to transfer risk, you got a price risk. And one of the frequent themes that we have is that it seems like countries around the world are moving apart rather than together in the way they apply the tax rules. No more so than in areas like transfer pricing and the ownership of assets and the recognition of risk, particularly after the BEPS Project. How is that changing how these risks get priced or even what deals you can do?

Michael Gaffney (03:44):
I think what it’s doing is focusing more on maybe there’s always been historic disagreement between tax authorities. I think what the BEPS Project has done is elevated that to a policy level where my view, looking at it, it looks like a lot of the BEPS program or the BEPS 15 initiatives. And I try to keep them straight by retired New York Yankees numbers. So I think that the number, the one that was underutilized most was the Babe Ruth one, which you would think that would be the top, but that’s the CFC rules. And why is that? In my personal view, mainly the targets were US multinationals.

(04:17):
It was all about the residual and you could solve the residual with an adequately policed CFC regime. And I think apparently the US thought they had one. Other jurisdictions may not have agreed because they obviously did not go back and read the 1962 committee reports where in the first version the house had a version that would basically tax as a category of Subpart F, certain income from the exploitation of intangible whatever the hell. In 1962, it hopped over to the Senate. Somehow that fell out. And really, I think the argument is BEPS, the main argument was all about who gets that residual.

(04:53):
I think the other big arguments, which one was I think six, which I guess is Joe Tory or Roy White, depending what era of the Yankees you think about, but that’s about access to treaties, probably the BEPS. Is it overly focused, but from a treaty perspective on whether you could save one level of tax but still have higher level of tax at home and confuse the inbound investment aspect, promoting the inbound investment, which tax treaties have a leg in doing with anything that have to do with a tax savings. And then basically take tax savings for themselves some sort of abuse of the rules.

(05:30):
So to me, the beneficial ownership, and we have seen tax insurance products to deal with this. So the shift of the BEPS analysis was what is the substance. I used to think of substance being something that’s required any transaction between related parties or unrelated parties. I think what the BEPS Program has done is changed substance from the transaction itself to the substance that’s in that box in your org chart.

David Farhat (05:58):
No. I was about say, let me interrupt you a little bit. The first thing is, as a Baltimore guy, it makes me really uncomfortable with BEPS and the Yankees.

Michael Gaffney (06:05):
Yeah.

David Farhat (06:07):
Just had to throw that out there also.

Nate Carden (06:09):
I was going to say, I will never think of DEMPE again without thinking of Yogi Berra.

David Farhat (06:14):
Yeah.

Nate Carden (06:14):
So this is excellent.

David Farhat (06:15):
Problematic.

Michael Gaffney (06:16):
8, 9, 10. You got Yogi, you got Roger Maris, and you got “The Scooter” Phil Rizzuto.

Stefane Victor (06:21):
I love that cartoon.

David Farhat (06:23):
This is entirely too much Yankee talk for a Baltimore kid. But kind of going back to that, to your substance point, Mike.

Michael Gaffney (06:31):
Yeah.

David Farhat (06:32):
If you could just unpack that a little bit -

Michael Gaffney (06:33):
Sure.

David Farhat (06:33):
... for the listeners to say, going from the substance of the transaction to the substance of that box.

Michael Gaffney (06:39):
Yes.

David Farhat (06:39):
If you can just describe and unpack that. And I think within that we can get to where we’re seeing a lot of the disconnect between jurisdictions and where some of the problems come up.

Michael Gaffney (06:49):
Sure. And I was going down the little hole of the US active financing exception, and to me that was my experience is the first time that you need to have substance in a box. But since 1998, it’s been there, saying, you need kind of two things in that CFC in order to earn deferral. And there’s an objective test and a subjective test. It’s a substantial activity test and a predominantly engaged test.

(07:16):
One test, the objective test goes to the box on the org chart, the entity. An effectively shorthand way to say if that’s a regulated entity, a financial services entity in the jurisdiction that it’s operating in, you pass that test. That’s the objective test. You go get a license, you’re good. The second test, and you need to meet this in order to get deferral of the income in that box, is the employees in that entity need to perform the substantial activities that generate the income.

(07:47):
I think that’s sort of where the rubber hit the road. I think up to that point, without the substantial activity component, I think there was a view among non-FS people that, “Hey, this is really great. We can stick a box in low tax jurisdiction and jam all sorts of passive type income into that box.” as it turned out, you cannot, until you have employees sitting in that entity that actually generate the income. And so, to me, that’s why what I saw where the BEPS program is going on this.

(08:19):
I was saying, “Okay, my view, you need to have humans in that box.” And fast-forward to the BEPS, post the 2015 finalization of the program. And as it’s been rolled out, not just along the OECD but the European Union picking it up, it seems like a lot of the European jurisdictions are saying, “Okay, we have it.”

David Farhat (08:38):
One of the things we’ve talked about here is we had BEPS 1.0 just in 2015.

Michael Gaffney (08:43):
Yep.

David Farhat (08:43):
That was not very long ago. We’re just getting comfortable with that. And they’re already talking about BEPS 2.0, right? And kind of unpacking what you said, it seems like it’s hard to pinpoint the policy reasons for some of these changes. How do you evolve around those changes with when you’re writing policies, when you’re looking at things that go forward and dealing with that kind of risk?

Michael Gaffney (09:05):
Yeah, I think the most important part is deciding what the covered tax position that’s insured is, and for what period of time and for what amount. And maybe taking the covered tax initiative key. In the analysis, we just went through it’s hold co eligible for article whatever of the tax treaty. That’s the legal question. That’s probably what they have an opinion according.

(09:29):
So in essence, the policy is covering that. The period it’s covering would be for the year it’s put in place. Normally, a lot of tax insurance policies in the US cover a seven-year period. However, that’s grown out of the fact that a lot of times they’re associated with merger and acquisition transactions where the buyer is inheriting the tax life of the subsidiary they’re purchasing.

(09:55):
So the forward-looking BEPS one is a little different. You’re going to need an attestation every year, there may be a premium every year based on year by year analysis. The thing is you’re going to have, on one side of the boat, if you will, it is the taxpayer, the insurance company that accepts the risk. They won’t accept it unless they believe it. And also, you would think the financial accounting firm that’s contesting the financial statements of the taxpayer. So people are in the same direction.

(10:24):
On the other side of the boat is potentially the adverse tax authority. So I think the idea on a forward-looking policy, and it’s a little more nuanced because you generally have to be very specific. Actually, you have to be very specific with the cover tax position for any policy. But for a year by year policy going forward, what we’ve seen is you could pay all at once for a period of time. Why wouldn’t you? If I was buying it, I said, why would I? It’s like I might sell this thing next year. And so, I think the idea is the expectation is every year you’ll renew it.

Stefane Victor (10:55):
Trying to make connections with what we’ve discussed so far. And what areas of subjectivity that tax insurance might cover, would it be the subjective portion of the economic substance, I guess, analysis that tax insurance would be especially fitting for? So a determination of the significance of employee functions at a specific CSC?

Michael Gaffney (11:22):
I think that would be the key. I think you’d probably want to cover both, right? The cover tax position would probably want to cover both. And to your point, I think you nailed it, Stefane. I mean, the hard issue is the subjective piece.

(11:34):
The objective one is fairly simple, but you would hate to have lost your license for a nanosecond, and then have the insurance company say, “Well, we’re not going to pay.” but to answer your question, you’re right. For that specific risk, you want to make sure that the attestation substantial activity of the employee is met on whatever basis is required in the law. If it’s annually, is it quarterly? What is it? And you’re basically going to wrap the policy around that provision in order to make sure it’s the covered tax provision.

(12:02):
And then going to the other point, which is probably obvious, but bears restating. It is if you’re a big taxpayer and you’re audited by Country X, you probably have more than one issue under audit. Maybe this act of financing may be 17 other things. Conduct provisions of the policy require... Having grandkids now, I like to think of it is the minivan approach.

(12:26):
The kids are in the car, they’re not driving, maybe they’re in the third row of the minivan, but they’re in the car and so they need to be aware. When they say, “Are we there yet?” Basically there’s conduct provision throughout the treaty. So generally speaking as a US person, if you get an IDR, the insurance company should be aware of it upfront before the contract’s accepted. You will generally agree on how far you have to fight this thing.

Nate Carden (12:53):
So I’m listen. I’m imagining a tax director out there listening to this, and I hear you say, “Hey, I can transfer this risk, but first I got to go through an MRI scan of my operations in order to get the thing priced. Then, when the audit’s going on, I’m going to have somebody chirping over my shoulder. Then, I got to worry about whether I’ve actually defined the tax risk correctly.” This all sounds like a big hassle. What are the kinds of risks where, in your experience, for your multinational listeners out there, both FS space and non FS space, does it make sense think about pursuing and was it probably more trouble than it’s worth?

Michael Gaffney (13:35):
I think it’s really for the things that insurance, whether it’s tax insurance or home insurance is for. It’s for the potentially low risk, but a huge, huge, huge downside. And we’ve been talking to a couple of taxpayers. Again, around the same time of BEPS, we had the 2017 tax cut and job act, and some incredibly complex provisions came in there. Someone asked, “Could we get BEAT covered?” And I started like, “Oh, my God.” What’s the issue?

David Farhat (14:06):
Every episode, someone has to do this to me, Nate. I think it’s a part of the plan.

Stefane Victor (14:12):
Oh, no.

Nate Carden (14:12):
It’s a -

Stefane Victor (14:12):
We did warn you. Don’t say BEAT.

Michael Gaffney (14:16):
Right? And the thing is, well initially that seems too complicated because there’s 19,000 factors to get into a daily calculation if they’re still into a monthly calculation, just to figure out whether or not the taxpayer is in the 2% bucket or the 3% bucket, depending if they’re financial services or not. And it’s like, okay, yeah, forget about it. That would be so difficult to ensure. It’s just difficult calculate.

David Farhat (14:38):
Yeah.

Michael Gaffney (14:38):
What are you really worried about? We’ve had discussions that it boils down to there may be the way the business is structured. There’s really one significant type of payment. Or maybe it’s not a payment, maybe it’s an allocation of revenue. Maybe there’s one flow that you have an opinion that’s a very high-level. Nonetheless, if that’s wrong, you pull that thread out, all of a sudden you’re not under the two or 3% threshold anymore.

(15:05):
All of a sudden you’re a BEAT taxpayer, and because you had a should opinion going back, jumping over to ASC 740, you haven’t felt the need to put up any financial statement reserve. So you haven’t self-insured any amount or maybe you’ve self-insured for some amount that you’d be willing to settle on, which again is probably a di minimus amount because you don’t feel like you’re subject to the BEAT at all. So why would you reserve?

(15:30):
And obviously it’s 2022 now, so you’re four or five years into this calculation and if every year the downside of that is make up a number, losing a hundred million. Now you’re into half a billion. Could you get that effectively, not the 9,000 calculations go into your daily BEAT count that distills into an annual BEAT count? Can you get that one issue that is really the critical issue insured? And I think the answer to that is yes.

David Farhat (15:58):
To go up a level on that, Mike.

Michael Gaffney (16:00):
Yeah, sure.

David Farhat (16:01):
I actually appreciate you using the BEAT example. Surprisingly. We’re seeing a lot of new taxes that look and act kind of like the BEAT, right?

Michael Gaffney (16:10):
Yeah.

David Farhat (16:10):
They have though the DPT, DST, all of these taxes, and we’ve kind of talked about the impact for tax practitioners and the impact for taxpayers and multinationals out there. What does all this change look like for your industry, for the tax insurance market? How are you guys dealing with that? Because I like how you walked through the BEAT and said, “Well, we may not ensure the entire for BEAT because there’s so many different factors in there, but we may be able to pick out one thing and look at that.” So how has that impacted what you guys do and your outlook into the future?

Michael Gaffney (16:47):
What we’re finding is usually it’s a couple of year lag, so the discussions we had, maybe it was early-2020, 2020 late, about items that we could potentially cover. We’re not really hitting the mark. We find six months later, nine months later, a year later, we get a call back and say, “Hey, you mentioned that tax insurance might be able to cover X, Y, Z. We’re realizing now that we might have that issue.”

(17:14):
And a lot of times like, “Well, why are you having the issue now?” Because that gets into the, what’s your motivation to get the insurance? Is the house already on fire now? “Oh, the bed was on fire when I got into it, so it wasn’t my fault.” The insurance company will want to understand the motivation and that goes into I think a lot of what we’re discussing earlier about the amount of information they’re going to want to see in order to place the policy.

(17:35):
But I think it’s sort of, to me, what I try to do is stay obviously involved with what’s going on and then figure out is it insurable or not, which will bring us back to, I think, transfer pricing whenever we want to go there. I think transfer pricing, to me, a lot of it relates to the residual. The CFC rules didn’t capture it, then the residual was up for grabs, so to speak.

(17:56):
And to me, what we’ve seen, there has been transfer pricing, tax insurance policies. A lot of them, at least to my knowledge, the ones I’ve seen have been basically based on... Which I was like, “Really? People care about that?” Intercompany lending, right? Question one is actually it actually a dead instrument. And then secondly, it is the interest rate charge in arm’s length rate. And so, it’s like, to me, it’s not the big dollars, it’s not the residual.

David Farhat (18:25):
We’re talking about the residual and I think you made a great point there in ensuring around that, and it seems like everything we read about with BEPS 2.0 and all of these unilateral measures, are tax authorities trying to go after that residual. And I think you’ll have some folks argue that maybe people aren’t being as principled. Well, I think we had Mike McDonald come on and talk about the arms length standard.

Michael Gaffney (18:51):
Yeah.

David Farhat (18:51):
Say, “Are we sticking to the arms length standard when we’re doing that,” right? Maybe we’re moving away from that. So as all of these folks try to get at that residual and come up with new techniques to get at that residual and some of unpredictable techniques to get after that residual, how do you guys manage that? How do you ensure around that? Because if you go back to what you said, you’re looking at a policy seven years down the line and you’ve got all of this evolution.

Nate Carden (19:19):
There’s always a new intangible.

David Farhat (19:20):
Yes, exactly.

Michael Gaffney (19:23):
One intangible you’re creating is entering into a tax insurance contract, which I think is an intangible for 263 cap A over the seven years, but we’ll put that aside. To me, it’s sort of normally the insurance contract, it’s for an existing tax risk that you have. And because it’s coming out of the M&A space mainly, it’s a seven-year policy for when you have it, so to speak. And then you kind of say, “Okay, it’s a claims made policy,” which means it doesn’t expire in seven years, but you have to make the claim within the seven years. You have to nail down what the cover tax position is for that period of time. Changes in tax law are excluded from tax insurance policy. So I think if there’s in the statute and you’ve got [inaudible 00:20:11], that’s kind of like a change of interpretation.

(20:15):
You have to go through the process of a court proceed, and I think that’s part of the conduct, generally conduct rules for the tax policy. We are dealing with a couple of taxpayers that the G in their ESG policy it’s like, “Yeah, we would prefer not to go to court.” And this gets into that’s not traditional because normally tax insurance is M&A, and you’re selling a box in your chart and the new person’s buying it. No one knows really anything. Everyone’s gone.

(20:43):
What we’re seeing more is, going back to the put option analysis for insurance contract, you can strike a put and call. Because effectively if you have a tax position that you’re not overly comfortable with or ready, and you’ve got some reserves set up under ASU 740, let’s say you’re reserving 20% of it, right? And you’re willing to wrestle around with the IRS or tax authority A, B, or C, and if you settled at 40, you’d still kind of say, “I don’t want to go to court. I’ll settle on the 40.”

(21:14):
We have discussions with several clients, so you only want the insurance to kick in at 40 and above. Do you want to do it pari-passu? How do you want to do it? Or is there a pain level, at what point you would definitely go to court? If that pain level is 65, then you don’t only need to ensure $1.66 and up. The premium on that’s probably going to be the same because the tax issue you’re insuring is the same, so the rate is the same. But the magnitude of the premium and pure dollar terms is much less.

Nate Carden (21:47):
The question we’re dancing around here a lot is the financial statement question.

Michael Gaffney (21:51):
Yes. Oh, yeah.

Nate Carden (21:52):
As we move on through this, help people that are listening who maybe don’t have tax insurance but are thinking about it, what’s sort of the income state and balance sheet geography of this? I get what it means to reserve for a tax position, but what happens if I insure it away?

Michael Gaffney (22:07):
Boy, I’ve heard people say, “Oh, you can enter a tax insurance and eliminate your reserve.” And I was like, “Wow, that’s interesting.” I don’t want to blame Fredonia again, is that Fredonian gap? I kind of look at it as you’ve got a potential liability for the IRS. Just we’ll leave the CRA and the rest them out of it. And I entered a contract at a different point in time with a third party where they’re going to pay me potentially if this other thing goes pear-shaped.

(22:41):
I think there’s a very, very narrow area. I think the general rule is, yeah, there’s no real offset when you enter into the contract. We’ll get back to when the payoff occurs, what happened. But I think in the M&A context, if the tax insurance is part of the transaction, there’s a very narrow, and it’s not ASC 740, I think it’s the business combination, the ASC 405, blah, blah, blah, that if it’s a condition of a sale, you can basically net it together, so to speak. Maybe what I’ll do is I’ll go up back after we clean this up a bit. But I think it’s a very narrow subset.

(23:17):
So there’s the point of the new CFO and new head tax that’s not really available to them. Or multinationals looking to use the policy as a risk litigant for an existing position that’s not really available. It’s sort of a narrow little alley having nothing to do with ASC 740 tax, or necessarily insurance. It’s this narrow part of the business combination. And then you’re buying something that has the tax insurance linked to this tax issue. And I think it’s a very narrow subset.

(23:50):
The general rule is like, “Hey, you owe the IRS potentially a hundred here. You’re going to pay company X five.” You know if the premium keeps going up in these? I want to make sure. It started at two and now it’s up to five.

Nate Carden (24:03):
Yeah, I’m noticing. Yeah.

Michael Gaffney (24:03):
But yeah. We’re up to DiMaggio. I’m try to get to Mickey Mantle. But yeah, so 5% and basically you say, “Okay, what do you do there?” Right? My view, toying with writing a long article on this, but you bought something. You effectively acquired, if it wasn’t called an insurance contract, economically looks like a put option and yeah, your premium’s five, right? And if things flip, you put that to the insurance company and you get a hundred.

(24:32):
The IRS doesn’t get any of that, right? To me, it’s like you still have an obligation, pay the government. And then you have this other thing over here. On day one, it seemed like to me, the question is this deductible year one? I’m like, “I don’t think so.” Arthur Miller dance studio and all that stuff. If you got something that you have seven years. Is it intangible? I would think it’s an intangible. It’s a contract. And you sit there like, “Okay, so I can amortize it over 15 years?” Well, it’s only a seven-year contract. I would think you’d probably amortize it over seven. That’s my own sort of analysis, which for better or worse, coincides with generally how an insurance company would pick the premium up. Not that you need symmetry in the world, but isn’t that lovely? It kind of works like that.

(25:17):
If and when, year five, you lose in court. You say, “Okay, great.” In the quarter you owe the IRS money. It would be great to confirm because you’ve been playing ball with the insurance company, they’re in the minivan, all that good stuff. They’re aware of everything. And in the same quarter, this thing you paid five for year one way back 5%, still at five. All of a sudden you have an insurance asset that leaps and expands and goes to a hundred.

(25:50):
Magically in that quarter, basically you’re able to use that hundred you’ve created to offset the liability you have with the IRS. So it’s kind of nice. That, to me, is how it works.

David Farhat (26:00):
Yeah.

Michael Gaffney (26:01):
I know there’s people saying you could. “Yeah, I’ve heard this.”

(26:03):
I’m like, “I don’t think so.” I did pass the CPA exam in 1982, so I think that CPA at this point stands for Can’t Pass Again, which I’m sure, but I don’t think the fundamentals has changed that much, right? You paid a nickel. It’s hard to figure out how you can eliminate a reserve that might be 25, right? It’s like, that’d be great. I would love it.

Nate Carden (26:27):
All those [inaudible 00:26:28] changers out there that were hoping they get rid of their reserves, they’re now really disappointed. So it’s the way it goes, though.

David Farhat (26:35):
So, Mike, as we’re coming into time, believe it or not.

Nate Carden (26:38):
Sure.

David Farhat (26:38):
Time flies when you’re having fun. Any final thoughts before we wrap up this one?

Michael Gaffney (26:45):
All right, let’s see. I think it’s something, to me, the way I think of the product, right? It’s a tool for advisors to have and for taxpayers to know about. I think we’re doing a lot of the last couple of years is just awareness. And the model of our firm and the other brokers is our business model. We don’t get paid until the policy accepts. So I probably spend a lot of my time, way more than half, between talking to people what the product could do versus, “Hey, we have a live risk.”

(27:22):
And then our process is we will hear the risk. We will generally, within a week, 10 days, come back with a non-binding indication. So the classic, “Tell us a little bit about the risk.” You’ve got to shoot an opinion from X. We’ll go talk to the underwriters, 20 odd underwriters, 10 might be they don’t want that kind of risk. So you’re down of 10. The other 10 say, “Well, if what you’re telling me is correct, the amount is this.” They have a should opinion from X, Y, Z. We’ve seen this risk before. Our pricing, depending when we get the underwriting is a range, it’s three to 4%. It’s four to 4.5.

(28:03):
Then we can give a report to the client. Say, “Hey, we talked to 20 clients. Here’s your non-binding indication report. We got quotes from six of the 10. 10 demur. The other 10...” We would say exclude these four because they have exclusions that are critical. Right? We’ll give them our recommendation. At the end, we’ll explain which one. Now, do you want to go through underwriting or not? And at that point, that’s the first time the client writes a check and then they go through underwriting and if it finally binds, then they write the big policy check.

(28:32):
Were they up to 7% by now? I forget. 5%, 4%, whatever it is. And then the policy accepts, when everyone agrees and off they go. Everyone sits there and waits for the seven years or whatever term it is to expire. And you figure out whether they’ve got the put option to the insurance company or whether or not in hindsight, “Oh, I wasted my 5%.” Right? Or 7%. Yeah.

Nate Carden (28:56):
Hey. Look. I have life insurance. I didn’t die last year. I’m not complaining about it. It wasn’t a waste. But look, you had me wanting your job until I heard you don’t get paid in until the policy’s in place. It’s still a fascinating market. Thanks for talking to us about it.

David Farhat (29:16):
It did.

Michael Gaffney (29:16):
It wards off dementia. That’s my main plan.

David Farhat (29:20):
As always -

Michael Gaffney (29:20):
Coming up on age 63. You got to keep going. You got to keep thinking.

David Farhat (29:24):
As always, a pleasure, Mike. Thanks.

Michael Gaffney (29:25):
Yes. Yes. We’ll see you soon.

David Farhat (29:25):
Yes. Okay.

Michael Gaffney (29:25):
Take care.

David Farhat (29:33):
Thanks for coming on. This has been GUILTI Conscience.

Michael Gaffney (29:33):
You got it.

Thank you for joining us for today’s episode of GUILTI Conscience. If you like what you’re hearing, be sure to subscribe in your favorite podcast app so you don’t miss any future conversations. Skadden’s Tax Team is recognized globally for providing clients with creative and innovative solutions to their most pressing, transactional, planning and controversy challenges. Additional information about Grand Park Law Group can be found at grandparklaw.com.