Let me preface this post by saying that I fully support the public and government efforts to get our country out of debt. Years of irresponsible government and a public that decrys it while at the same time taking advantage of it, have left us beaten down almost to the point of not being able to recover.

In a move that many of us in the life insurance business have been warning about for years, the President’s National Commission on Fiscal Responsibility and Reform (nicknamed the Deficit Reduction Commission, or DRC), completed its work without a formal vote on the deficit reduction plan coauthored by the Commission’s two co-chairs. The DRC plan proposes to repeal all “tax expenditures,” and therefore, would result in a tax on life insurance and annuity cash values, and on most employer-provided benefits. A tax on the cash value in life insurance?

These guys need to go after those who are raping and pillaging life insurance as we know it and leave life insurance cash value and appropriate death benefit proceeds tax free, just like they’ve always been.

Let me clarify what I mean by appropriate death benefit proceeds. When a husband leaves a family life insurance benefits, that’s appropriate. When a business partner uses the life insurance benefits to buy out a deceased partner’s share of the business in a buy/sell agreement, that’s appropriate. In my opinion investor owned life insurance is not an appropriate use of life insurance, and if the government wants to tax a death benefit, it should be the benefit paid to the life settlement company. Where else, other than government bonds, are people allowed to have investments grow tax free?

Although I am not an advocate of cash value policies as a prudent means of insurance, I am absolutely against the government taxing what was sold and purchased as a vehicle that would grow tax free. It is not a giant leap of assumption if the government gets that toehold, for them to get pork barrel eyes over the potential of taxing death benefits.

Bottom line. The government is likely to start slaying sacred cows left and right. Their motive, debt reduction is honorable. Their targets aren’t.

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