Killing the Death Tax: How a Change in the Tax Law Impacts Life Insurance Sales

By Chris Orestis via

The life insurance industry has long thrived on the fear that your heirs will be stuck paying a “death tax” on your estate and end up forced to sell long-held family assets to pay for it. For many asset-rich, cash-poor clients, the only option was a life insurance policy that provided funds their heirs could use to pay the 40 percent tax on estates of $5 million or more.

That is going to change. With the passage of new Tax Cuts and Job Act, the size of affected estates has doubled, changing how this pool of clients will look at their life insurance needs and how insurance companies approach them.

With the passage of the tax cut, a couple can amass an estate of up to $22.4 million without federal tax when they die, making it unnecessary for many consumers to find a funding source like life insurance to pay the estate tax. That will not only change a key selling strategy for the life insurance companies, it will mean that many of those who bought policies based on the estate tax will be taking a hard look at the insurance they own.

For the insurance industry, estate planning has been one of the most important reasons Americans buy life insurance. The Insurance Barometer Study conducted by the Life Insurance Marketing and Research Association (LIMRA), found it to be the third most popular reason to buy policies with 63 percent of survey respondents citing their estate as a major reason to buy life insurance.

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