Going forward, there will be much analysis of the recently enacted federal tax legislation and its impact on the life insurance industry.
The predictors of doom will declare that estate tax repeal will cause the end of sales of traditional cash value life insurance products. Others will look at the enhancements to qualified retirement plans as a wonderful opportunity to sell annuity products.
All this rhetoric may cause us to lose sight of the fundamental reasons for purchasing life insurance: insuring human life values.
In recent years, the two of us seem to be attending more funerals of friends and loved ones than when we were younger. Our emotions are always bittersweet–feelings of sadness coupled with hopes the survivors can adapt and get on with the remainder of their lives. Above all, were concerned that the survivors have adequate financial security already in place. Such security is far more important for most of us than tax avoidance.
Thats where life insurance comes in. Regardless of whether the estate tax stays repealed (and we question anyone who thinks that five more Congresses will leave the "repeal" of the estate tax in place), traditional life insurance will still provide financial security to the loved ones of those with enough foresight to purchase it.
No other financial product can provide the average person (including the "average" well-off person) with the same degree of financial security as traditional cash value life insurance provides.
Traditional products help to provide affordable protection that can weather all sorts of financial storms, be it death, disability, retirement or emergency needs.
We do not question the legitimate need for term insurance. Nevertheless, term insurance provides only a temporary solution for financial needs planning. The inescapable increases in cost as the insured ages do not make it a permanent solution for an aging population.
Regardless of what happens to the estate tax, even old people still need traditional cash value life insurance–if for nothing else, to supplement retirement.
This insurance will also remain essential to the succession planning for family businesses, particularly when some of the children do not desire to work in the business.
We do not believe the estate tax is a fair tax. It causes avoidance of too many artificial constructions to be consistent with sound public policy. (Indeed, there is a good reason why it has long been called the only "voluntary" tax–because only those who are unwilling to do some effective planning end up paying it.)
Moreover, this tax engenders a type of "economic class warfare," in that it is assessed only against a small percentage of the population. These are the people who have been inordinately successful in financial terms.
It almost seems the tax should be termed the "envy" tax, because it is only levied against the handful of citizens who have amassed the amount of assets that are subject to the tax. Average earners are not sympathetic to such individuals and so have been willing to allow an unfair tax to be levied against them!
