There are a couple of reasons this upcoming election could have an impact in the life insurance realm. For most of us poor folks you would think that estate taxes wouldn’t be a big issue. I think it’s significant no matter who you are.
Just to recap the journey that estate tax law has been on, back in 2000 estate taxes had to be paid on any estate over $600,000. The $600,000 is called an exemption meaning that much of your estate is exempt from taxes and can be passed to your heirs tax free. What was happening was that people were working all of their lives to build up businesses like ranches and farms, and the more successful they were, the more the federal government got when they died.
Because there is also a rule that says the taxes have to be paid within nine months, this often creates a fire sale situation where full value is not realized. It was not unusual to see businesses worth $2-$3 million be sold for pennies on the dollar to meet the tax obligation, leaving the family with nothing.
So, the exemption has been increasing since then and is now at $2,000,000. Next year it will go to $3,500,000. Theoretically in 2010 it will disappear altogether and there won’t be any estate tax and at the end of 2010 it will reappear with a $1,000,000 exemption. Confused yet?
The idea of raising the exemption to next year’s $3.5 million is a home run for hard working families and family owned businesses. Congress has a choice about everything that happens in 2010, and depending on who is in charge I, and many of my colleagues think it will shake out one of two ways. Either the Democrats will be in charge and they will choose to freeze the exemption at $3.5 million, or the Republicans will be in charge and they will let it go away.
Without getting political, if it is frozen at $3.5 million, a home run has been hit over the past 10 years for those who have been successful. If the exemption goes completely away the government will have done away with an historic funding source that has finally been made fair. That funding source will then be distributed over a broader number of people and the poor folks will get to help carry that burden.
The other thing has to do with health care and health insurance. In an article I read today it cited a study that showed that people without health insurance were more likely to have cancer diagnosed later, often too late. Because they can’t afford what some people can afford, they don’t get to live as long and their families can be destroyed over inordinately high medical costs.
Bottom line. Plenty of life insurance reasons to think about the upcoming election.