Whose Estate Is It Anyway?
Timothy Carney of Reason Magazine is challenging what he sees as Crony Capitalism by the life insurance industry. Here is some background for you, along with my assessment.
Focus on estate planning
Life insurance is frequently an essential component of estate planning. It is used to transfer wealth via cash value and survivor benefit. It is also used for estate preservation. A policy equal to the estate tax due is purchased. The tax is paid with the insurance benefit, so the assets of the estate do not have to be liquidated just to pay Uncle Sam.
A cost-effective way of paying the tax
This method of paying estate tax is popular because it is cost-effective. The most expensive way of paying estate tax is via cash – simply writing a check out of a liquid account and paying the amount due, dollar for dollar. It would also be expensive to have to sell assets at a discount just to meet the tax payment deadline. People unfortunately have had to sell businesses, homes, and other properties in a “fire sale” to come up with the tax payment on time. On the other hand, every dollar of life insurance benefit literally costs pennies. It is a small price to pay to keep the estate whole.
The moral principle involved
It is this moral principle that to me really underlies the purchase of life insurance to pay estate taxes. People have a right to keep their properties in their own family, or to pass them on to whomever they choose. Under current law, the federal and state governments have assumed the authority to confiscate a portion of the value of these properties. People naturally use smart estate planning, and often life insurance, to avoid or minimize the impact of that tax. Maybe some day the estate tax will be repealed for good, and Americans would be free of one huge burden. Until that time comes, life insurance is a noble tool for preserving liberty – an economical defense-mechanism against big government.
But what would you say if life insurance companies actually lobbied to preserve the estate tax? They would then really be using government to secure their market share. They push for the government to impose the tax, and then they sell their product to pay for it. Life insurance is no longer used to defend liberty – it is a tool to make government intrusion as affordable as possible. The companies benefit, the bureaucrats benefit, but the consumers still lose. We have to shell out money for life insurance just to protect and pass on what is rightfully ours.
The Big Bottom Line
Now, I am a second-generation life insurance salesman, and a big believer in the product. But what is more important to me is doing the right thing. Why? Because you know as well as I do that when we each are lying in our deathbed, our contribution to corporate profits or the growth of government will mean nothing. It is the extent to which our gains were other people’s losses that will be reckoned.
Here is a summary of Tim’s viewpoint. Please read the article and let me know if you agree.
There’s nothing inherently wrong with profiting off big government. If the government creates a surplus of deer, someone has to thin that surplus. If government forces factories to clean up their emissions, someone has to make the smokestack scrubbers. If government requires drivers to use ethanol, someone has to make the stuff.
Nor is it inherently wrong to lobby for policies that increase your profits. “Petitioning the government for the redress of grievances” is protected by the First Amendment, and the regulatory environment often chips away at the profits companies would otherwise make. What is wrong is to lobby for policies that enrich your business by taking away other people’s property or liberty.
If undue intrusions on liberty are immoral, then helping enact those intrusions is also immoral. Sure, the politicians who create corporatist policies bear the ultimate blame, but if you, as a lobbyist, convince someone to do something wrong, how are your hands not also dirty?