“Scheme,” “rampant abuses,” “tax avoidance,” “equity” and “investigation” are some of the words in an article on private placement life insurance (PPLI) I recently read.
I’ve always found it interesting, not to mention duplicitous, ironic and hypocritical to hear people talk about things they don’t like when that language is conspicuously absent regarding things they align with. For example, most taxpayers appreciate their home mortgage interest and charitable deductions; however, the same people may refer to tax laws for rich people and corporations as loopholes and abuses and schemes and tax avoidance. Why the special set of adjectives?
What makes something a loophole rather than simply using an Internal Revenue Service and Congressionally approved tax rule? Prejudice? Bias? Political perspective? Social agenda? The term “equity” was used a few times in the piece, so you know from which view the author was approaching this. Talking about equity in a conversation about life insurance takes the topic in a particular direction.
The article also conflated the idea of PPLI with hiding money in Swiss accounts. If we’re talking about the evils of tax avoidance, isn’t having undeclared money in anonymous Swiss accounts the issue, not what the money is invested in? I suppose associating something with “bad” makes it more bad.
My takeaway is supposed to be that PPLI is a lucrative scheme rampantly abused by the ultra-high-net worth set to perpetuate inequity through tax avoidance. I’ve been accused of being too wordy at times, but it looks like I summed up his entire article in one sentence.
Transparent Form of Life Insurance
What’s PPLI, really? PPLI is a uniquely transparent form of life insurance, built on the same Tax Code as all other life insurance. It’s also a market confined to qualified purchasers who can access a broader array of investment alternatives, including non-registered funds and separately managed accounts, under rules established by the Securities and Exchange Commission, the same as in the non-insurance world.
There’s currently a congressional investigation into PPLI. After being pushed by insurance carriers to change some rules governing life insurance and how much premium and cash value can be associated per dollar of death benefit, Congress enacted changes as part of the Setting Every Community Up for Retirement Enhancement Act. These rules allow more premium per dollar of death benefit so cash value can be a greater percentage of the death benefit, reducing expenses. These were objectively antiquated rules put in force decades ago that hadn’t changed with the times and financial markets.
Leading insurance carriers who pushed for this change in rules provide traditional whole life policies to their primary, middle class constituency. However, once it was realized that the rich could also benefit from more efficient cash value accumulation as well, it became “bad.” Not bad for the middle class, mind you, just for the rich… the very same rules.
Does Political/Social Agenda Play a Part?
My issue is this; if two individuals use the same Tax Code, or if two individuals buy identical life insurance policies from the same life insurance company, how can one be a scheme and the other a responsible tax payer using the available tax rules? Can one participate in rampant abuse of the tax law while the other is looking out for their family when they’re doing the same thing? Is one guilty of tax avoidance and the other not?
The answer is obvious. I’m not saying that every individual, regardless of their income and net worth, should have to play by the exact same rules, but if you’re going to be pushing for particular political and social agendas, at least be truthful about it. Not everyone is going to agree with “vertical equity” the author references a couple of times, and that’s ok. But if you’re in favor of one set of rules for one group of individuals and another set of rules for another set of individuals to advance how you believe the world should be, then just say it. Don’t hide behind hypocritical commentary that falls apart under mild scrutiny. If you believe rich people are bad and should be taxed out of existence, let it be known. Don’t run around as a social warrior dressed up as a tax expert.
It would be better to write the following:
"Bill, I believe it’s not healthy for a society to have wealth concentrated in the hands of the minority. I advocate for the advancement of rules that treat wealthy people and middle income Americans differently. Let’s agree not to throw around emotionally charged language in an attempt to rile people up and to move forward on the merits of our respective arguments.
You and I see things differently, and that’s ok. I’ll work to advance my objectives, and you work to promote yours. I’ll win some and you’ll win some, but let’s commit to doing this civilly and honestly and without fostering hostility towards the other party."
Bill Boersma is a CLU, AEP and licensed insurance counselor. More information can be found at www.OC-LIC.com, www.BillBoersmaOnLifeInsurance.info, www.XpertLifeInsAdvice.com, via email at [email protected] or call 616-456-1000.