If you own a life insurance policy today, any cash value that builds up over time in that product is tax-deferred. The policy’s death benefit, which will provide financially for your family in the unfortunate event that you are unable to, is not taxed by the federal government.
It’s been this way since the very first Internal Revenue Act in 1913. Lawmakers then and since have seen the value of life insurance and have realized that taxing products that provide for the financial health of so many Americans would do more harm than good.
These facts serve as the foundation for 100 years of regulation protecting the tax status of insurance products.
Yet, the amount of money the federal government brings in and the amount it spends have gotten so out of whack that congressional leaders have made overhauling the federal tax code a priority for this year. It will be painful and it is likely to affect every American. Even the tax status of life insurance and annuity products could be on the table.
I work every day on behalf of families and small businesses in our community to help them prepare for a brighter financial future.
Early next week, I’ll be working on behalf of my clients in a very different way. I’ll join 1,000 of my colleagues from the National Association of Insurance and Financial Advisors in Washington, D.C., April 9 to visit every congressional office and tell our clients’ stories.
When we are finished, Congress will know how life insurance lets parents sleep at night, confident that their children will be taken care of financially – even if they are no longer around. Congress will know how insurance products empower people to be self-sufficient rather than placing added burdens on strained government programs.
When I visit with Sens. Jim Risch and Mike Crapo and with Congressmen Mike Simpson and Raul Labrador, I will tell them that in Idaho more than 500,000 people own individual life insurance policies. Others benefit from group coverage. People in our state received more than $1 billion in payouts in 2011, according to SecureFamily.org.
Nationwide, 75 million American families rely on life insurance products for financial security. These products account for 20 percent of long-term savings in the country. What’s more, life insurance companies pay out over $1.5 billion every day. The life insurance industry directly supports 2.5 million American jobs.
Now, more than ever, it is important for Congress to hear about the important ways life insurance contributes to the economy and the financial health of Americans.
The good news is that our leaders in Washington have 100 years of precedent to draw upon. As the debate heats up, we hope any proposal that would change the tax status of insurance products will have a very brief shelf life.
Those of us in the insurance industry plan to make sure Congress remains well aware of the importance of life insurance and its historical treatment under the tax code.
Congress and the President should quickly realize, just as their predecessors have since 1913, that the overwhelming good life insurance does for consumers and society far outweighs any short-term gain that may come from taxing these products.
B. Hyatt Erstad is principle of the Boise-based Erstad & Company and has been providing insurance consultation, services and products since 1979. He is chairman of the board of the Idaho Small Employer Reinsurance and Individual High Risk Pool. He can be reached at email@example.com or 208-343-8899.