Every few months, the president and Congress come to loggerheads over the ballooning federal debt. We saw it as they struggled to agree on a national budget and raise the federal debt ceiling. We saw it as they wrestled to head off the so-called fiscal cliff.
Just as death and taxes are among life's certainties, we can be sure that 2013 will bring even more political wrangling. The amount of money that the government brings in and the amount it spends have gotten so out of whack that most political observers expect Congress to overhaul the federal tax code.
Desperation in Washington has reached the point that tax reform could even affect the products those of us in the life insurance business use to help 75 million American families secure their financial futures. If you own a life insurance policy, cash value that builds up in that product is tax-deferred. The policy's death benefit, which will provide financially for your family in the unfortunate event that you're unable to, isn't taxed.
It's been this way since the first internal revenue act passed in 1913. Lawmakers then — and since — have seen the value of life insurance and have realized that taxing products that provide for the financial health of so many Americans would do more harm than good.
Life insurance products account for 20 percent of long-term savings in the United States. What's more, according to SecureFamily.org, life insurance companies pay out over $1.5 billion every day. The life insurance industry directly supports 2.5 million American jobs. In Oklahoma, more than 2 million people own individual life insurance policies, with others benefiting from group coverage. They got more than $3 billion in payouts in 2010.
If tax reform makes life insurance less attractive, more families will certainly look to government entitlement programs to provide for them in difficult times. Yet tax reform in 2013 could put it all in jeopardy. Lawmakers from both parties have indicated that every potential source of revenue will be on the table.
The insurance industry plans to make sure that members of Congress remain well aware of the importance of life insurance and its historical treatment under the tax code. Congress and the president should quickly realize, just as their predecessors have since 1913, that the overwhelming good life insurance does far outweighs any short-term gain that may come from taxing these products.
Waters is CEO of the National Association of Insurance and Financial Advisors.