To amend the Internal Revenue Code of 1986 to clarify the exclusion from gross income for amounts received by a policyholder from a State on account of the insolvency of an insurance company.

Amends the Internal Revenue Code to exclude from gross income any payment the holder of an annuity, endowment, or life insurance contract receives from a State to indemnify such holder for any loss because of the insolvency of the insurance company, if the holder uses such payment to purchase a similar contract. Provides for reducing the basis of such contract by any amount not included in gross income.