Tuesday, April 9, 2013

US Debt Reduction Sequester Tax Solution #47: Eliminate Tax Deferrals for Whole and Variable Life Insurance Investments by High Income or High Asset Individuals

Presently, many insurance companies and other financial institutions sell whole life insurance policies and variable universal life insurance policies mainly to rich individuals.  What makes these life insurance policies very attractive to the rich who are at a very high effective income tax rate is that the income earned from the investments in these life insurance policies grow on a tax deferred basis.  So clearly, the main economic value of these life insurance policies comes from the tax loophole embedded in them.

My recommendation here is that the income earned from these life insurance policies invested in by either high income or high asset individuals will be currently taxable either to the individual investing in the life insurance policy or to the life insurance company selling the life insurance policy.  I'll leave it to the US Congress as to what constitutes a high income and high asset value for individuals.