Looky There - Obama Proposes New Insurance Tax to Fund Health Care Initiatives

On Monday, May 11, President Obama’s administration outlined eight new tax proposals.

Don’t worry – I’m not going to list them all here. You can read the details and technicalities elsewhere, like the LA Times, Bloomberg News, The Wall Street Journal – or you can just Google it.

Now, please don’t get confused. This is an entirely new proposal from the one issued Monday, May 4 – what is it with Mondays? – which I wrote about two weeks ago. If you haven’t read that post yet, it would be a good idea to read it so you can catch up.

My purpose here is to discuss the newly proposed changes as they relate to individually owned life insurance contracts.

Transfer-for-Value Exemption Removed

Basically, in plain English, the administration’s proposal, IF enacted and implemented, would tax the sales proceeds when policyholders SELL their contracts to investors (as in Life Settlements) for immediate benefits. The way it works right now is that anyone who sells a life insurance policy generally is taxed on the full proceeds they receive, minus the policy’s adjusted basis. The only exceptions are if the buyer is a settlement provider and the insured is chronically or terminally ill, also known as transfer for value.

The new proposal removes the transfer-for-value exception and requires buyers to report a lot more information to the IRS, including the policy’s purchase price, policy number, issuing company, and the buyer‘s and seller‘s taxpayer ID numbers.

So, your Aunt Elaine and Uncle Eddie needn’t worry, as long as they bought their life insurance policy for its intended purpose: to help pay expenses if one of them should die earlier than the other. If you use insurance contracts for cash accumulation and death benefit purposes, your tax advantages are NOT affected – by this proposal. Say, on the other hand, your neighbors, Bill and Brenda, are in the business of obtaining life insurance policies and then turning around to sell them right away. They will feel the effects of this new proposal in a big way.

I must point out that I am getting quite a kick out of these new tax proposals – seriously! Because they keep echoing what we have been teaching and preaching for a while now. Our prophecies seem to be unfolding, and I have to tell you that it feels incredibly pretty good to have so accurately predicted these circumstances!

A Fact You Can Bet Your House On

The federal government pays for things with tax revenue, and given the two alternatives will always tax more, rather than spend less. This has nothing to do with politics; it’s just how government works. You must realize that the purpose of these proposals is to raise tax revenues.

In this particular instance, the goal is to raise $12.8 billion through 2019 to help pay for the President’s health care initiative. Told ya! And pay particular attention to the fact that no one is claiming there is anything illegal about this – the President simply needs to pay for stuff.

Make a Smart Move

Get your money out of a taxable environment and into a tax-free environment while you still can. If that sounds odd to you, you have more than likely been following conventional financial advice. Or your financial advisor has successfully made you believe the LIE – that a Roth IRA is your best bet. Or you have been brainwashed into believing the myth that you’ll be in a lower tax bracket once you retire, so it’s a good idea to use qualified accounts now.

Rather than gambling your financial future, it would behoove you to get a complimentary consultation with a Laser Financial Group strategist so that you can learn how to preserve your wealth and make your retirement income tax-free. Doesn’t that sound much better than the alternative – being at the mercy of the federal government?

There are a ton of Mondays ahead, and who knows what the next one will bring? Join our clients who enjoy time-tested, proven, common-sense, practical, and legal – yes LEGAL – strategies that help them keep more of their money.