The wealthy has been able to keep its political clout by creating low tax financial instrument either cloaked in secrecy with purchased political backing or throwing a few scraps to the middleclass as was life insurance. It is ironic that now that they decide it was more efficient to market to the wealthy that ignoring the middleclass in a major way may actually create a political liability as it pertains to maintaining extremely advantageous tax advantages biased to the wealthy.
Given Americans propensity to believe sound bites and their aversion to reading, I am not sure it is a real concern. The article does give me pause in their belief that middleclass Americans may actually be watching and thus politicians may not be as malleable. One could only hope.
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Shift to Wealthier Clientele Puts Life Insurers in a Bind
By MARK MAREMONT And LESLIE SCISM
The life-insurance industry has enjoyed beneficial tax treatment for its products for nearly a century. Whenever Congress tried to change that, insurers always had a mantra at the ready: We protect widows and orphans.
Life insurance needs to be free from income taxes, the industry said, because of its special social function. It keeps survivors from a life of penury when a chief breadwinner dies.
But in a development all but unnoticed outside the industry, life-insurance companies gradually have shifted away from their broad historical base of middle-class households. Instead, statistics show, an increasing portion of insurers’ business consists of selling large policies to wealthier Americans, often as part of complex estate-tax plans.
The shift means that a growing proportion of the tax benefits of life insurance goes to the well-off, not to the middle class that once was the industry’s backbone.
The industry’s safety-net role is eroding just as Congress is scouting for new revenue sources amid gaping budget deficits, raising concern among insurance executives that lawmakers could revisit the industry’s tax advantages.
There is no proposal in Congress this year to curb the tax breaks for life insurance. Washington insiders say any such attempt would likely face heavy opposition from insurers and agents, as well as from the general resistance to any kind of tax increase at a time when the economy is weak.
Still, "the vast majority of business in America is worried about the budget shortfall and the need for the federal government to ramp up revenue," said Matthew Winter, president of Allstate Corp.’s Allstate Financial unit. For life insurers, "certainly it is a legitimate concern."
The industry’s years-long shift toward wealthier buyers is clearest in "permanent" life-insurance policies, including varieties known as "whole life" and as "universal life," which combine a death benefit with a savings or investment account. These represent almost three-fourths of individual-policy premiums collected.
They have a dual tax advantage: The death benefit isn’t subject to federal income tax, and earnings in the investment-account part generally accrue tax-free.
High-end policies for $2 million and up, which can carry annual premiums of $20,000 or more, made up nearly 40% of the face value of new whole-life and universal-life policies sold in 2007, according to an analysis done for The Wall Street Journal by Limra, an industry-funded research group. Such large policies accounted for just 10% a decade earlier, and 1% two decades ago.
Shift to Wealthier Clientele Puts Life Insurers in a Bind – WSJ.com
