A New York and New Jersey Lawyer Who Represents Policyholders and Beneficiaries in Life Insurance Denial Cases

An article published in the Wall Street Journal by Mark Maremont and Leslie Scism addresses how life insurance has become less prevalent among the middle-class with wealthy individuals using it more and more as an investment vehicle and tax haven.

Life insurance death benefits are not subject to income taxes. The insurance industry has resisted efforts to make them taxable because, it says, they are intended forĀ a vulnerable population, widows and children who have lost a parent. But research has shown that life insurance policies have increasingly been purchased by the wealthy, while the rate for middle-income families and individuals has sharply fallen. In fact, 30% of families do not have life insurance, a four-decade high.

Most of the policies being purchased are “whole” or “universal” life insurance policies that combine a death benefit with an investment vehicle. The investment earnings generally accrue tax-free and, again, the death benefit is free from taxes. High-end policies of $2 million or more comprised 40% of all whole and universal life policies sold in 2007.

So, while life insurance, now purchased more and more by the wealthy, is generally not taxed, the United States is faced with a whopping deficit, rampant budget cuts, and the prospect of higher income taxes.

The insurance industry says that favorable tax treatment is a good idea because it encourages wealth accumulation that creates jobs. But couldn’t that be said about any vehicle that amasses wealth in the hands of the well-off?

In any case, perhaps the rumblings have begun to start taxing life insurance? It is estimated that eliminating the tax preferences for the investments of whole and universal life policies would add $265 billion to the treasury over a decade. Also noted by the article is that the recent trend in life insurance has detracted from its social purpose of providing for families who have lost a loved one.

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