WASHINGTON D.C.(Bloomberg) –Life insurers are getting nervous over the growing momentum to repeal estate taxes. Elimination of inheritance taxes could reduce demand for life insurance, a common estate planning strategy. Already, publicity surrounding the estate tax debate is being blamed for “some slow down” on life insurance sales, said Colin Devine, an analyst at Salomon Smith Barney Inc. He didn’t provide details.
The industry’s main trade group is walking a fine line on the issue. “We want to support tax relief for our customers first and foremost,” said Phil Anderson, a top lobbyist for the American Council of Life Insurance. Insurers also have other issues before Congress and don’t want to anger congressional Republican leaders, who consider estate tax relief a priority.
Beyond Cash Donations: How New Forms of Giving Are Transforming Not-for-Profit Accounting
Evolving Funding Landscape for Not-for-Profits Not-for-profit organizations are being asked to do more with less,…
Learn More
Anderson said his group is officially neutral on the issue, but added: “We are obviously reassessing that position because of the direct impact on our membership.”
The U.S. Senate recently voted to phase out the estate tax over 10 years. The measure now goes to President Bill Clinton. He’s vowed to veto it, yet has said he’s open to compromise. Congressional Democrats have already offered an alternative with the size and scope that suggest room for negotiation.
Common Tool
There was $94 billion in individual life insurance paid in 1998. The American Council of Life Insurance couldn’t estimate how much of that was purchased for estate planning. Tax advisers recommend life insurance as a part of a strategy for small businesses to manage estate taxes, since it would provide sufficient funds to pay taxes on the business owner’s death, thereby avoiding sale of land or buildings.
One survey of small businesses showed life insurance premiums accounted for the largest amount of money spent on estate tax planning. The Travis Research Associates Inc. survey of 272 family-owned businesses, conducted in February for the National Association of Women Business Owners, said the average amount these businesses spent on life insurance was $30,000.
Devine said a repeal’s impact would be company-specific. Axa Financial and John Hancock Financial Services could be hurt the most because they have broader distribution, he said. Companies like Lincoln National, MassMutual, New England Life Insurance and Manulife Financial, whose products are aimed more at the richest customers, will be less affected because those people will still need life insurance products, he said.
Threat Played Down
Indeed, Lincoln National and other insurance executives played down the threat from an estate tax repeal. “People buy life insurance for a number of reasons, not just for estate planning,” said Jim Morrill, a vice president for Lincoln National Corp.
For example, consumers will still need life insurance to shield money from taxes on capital gains taxes that also can be paid upon death, he said.
Devine said estate tax repeal is unlikely to pass because the money it takes in every year is needed to fund Social Security. “Social Security is very underfunded,” he said. `
Stuart Brahs, lobbyist for Principal Financial Services Inc., said the company and others in the industry are watching it but aren’t lobbying heavily.
”We’re seeing how it plays out,” Brahs said.
The ACLI’s Anderson said there are different ways to repeal the tax, with some options being better than others.
Opinion polls show growing public support for tax cuts. Taxes are now the second most important issue to Americans, outranked only by education, according to a poll released yesterday by The Hotline, a daily Web-based political newsletter owned by National Journal Inc.
