As Congress looks for new revenue sources in the midst of huge budget deficits, life insurance businesses worry that lawmakers may reconsider the industry's tax advantages. Life insurance companies claim they have a role in protecting widows and orphans from poverty in the event the main breadwinner in a family dies. According to The Wall Street Journal, this has kept life insurance free from income taxes.
Although insurers have a historical foundation in providing for middle-class households, statistics have shown a large shift where more affluent Americans have become a majority of policy owners. Those who are well-off end up collecting profit from their policies as a part of complex estate-tax plans. A NY estate attorney can explain the process in better detail.
Wealthier buyers can get "permanent" life insurance policies that combine a death benefit with a savings or investment account. They come with a dual tax advantage where the death benefit is not subject to federal income tax, and earnings in the investment-account generally accumulate tax-free. Permanent life insurance has been seen as "a tax shelter for the rich," while middle-class families receive a smaller portion of the overall tax benefits.
The percentage of American families owning life insurance continues to drop, and 30 percent of people do not have any kind of life-insurance. Many middle-class individuals lean towards having a less-costly "term" insurance, which provides coverage for a selected amount of time. The only tax break is an untaxed death benefit, which doesn't happen very often since most buyers are in their 30s and 40s and remain alive at the end of the policy's term.
New York estate planning attorneys have yet to see if Congress decides to take any action with regards to the life insurance industry's tax breaks. As for finding out whether you may need life insurance and learning what options are available to you, contact a NY estate planning lawyer for advice or look through the Related Resources links.