Camp Hill, Pa., (March 7, 2013)– Millions of families are unaware that a slight change in the tax law on life insurance can have enormous implications for their financial future and dire consequences for 20 percent of Americans’ savings, says InsuranceNewsNet Magazine Publisher Paul Feldman.
“Individuals and families bought life insurance with a promise of tax-deferred growth and now bureaucrats are looking to that as a tax ‘expenditure’ to revoke for revenue,” Feldman says, noting that life insurance accounts for 20 percent of all savings in the United States. “But this would have the opposite effect, with fewer people buying life insurance and fewer people protecting their families -- eventually costing rather than saving tax dollars.”
Tax “expenditures” are what fiscal analysts call favorable tax treatment. But by focusing on the tax-deferred status of life insurance gain as an expense, those analysts are missing the protection that life insurance has delivered for Americans since the founding fathers, such as Benjamin Franklin, promoted insurance and annuities to protect widows and orphans.
“The tax status was awarded in recognition of that essential protection,” Feldman says. “But that can change in a dead-of-night tax deal that undermines its value to Americans. People should let their representatives know that they depend on insurance.”
InsuranceNewsNet Magazine covered the topic in its March edition with its main feature, “The Taxers Are Coming!” (http://issuu.com/innm/docs/innmmar2013/26?mode=window). In the article, Editor-in-Chief Steven A. Morelli explores how the 75 million American families who rely on life insurance and annuities for financial security could wind up paying an unexpected tax if Congress decides to end the favorable tax treatment granted to life insurance products in 1913.
The tax-deferred growth of investment income in life insurance and annuity products sometimes is the only gain in a family’s net worth and something that people count on to secure their children’s future. Small businesses also sometimes use that money to help them through tough times, Feldman says.
“Many advisors have told us that clients were able to keep their businesses going during the recession because they were able to borrow against the cash value of their owner’s life insurance policy,” Feldman says. “This was during a tumultuous period when no one else would lend them a dime.”
Feldman says individuals should know that their legislators are looking to tax that investment gain to fill in budget holes left by the federal government’s inability to rein in spending. He urged citizens to visit the site www.INNvolved.org and find out how they can help.
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