A recent Wall Street Journal article argues that the importance of life insurance as a safety net for the middle class “is eroding,” because rich people hold a growing portion of the dollar value of whole and universal life policies. The article ballyhoos the fact that wealthy Americans (the top 10% by net worth) hold 55% of the tax-free investment gains of these products. According the Journal, the industry may not be able to justify the traditional tax-favored status of its products much longer.
Note to the Journal: Is it really headline-worthy that, statistically, rich people own more valuable things — be it life insurance, homes, or what have you — than people with less money? Take a look at individual retirement plan accounts. Is anyone shocked that families with incomes of $150,000 or more hold 50% of the assets in these plans? Does this fact in any way diminish the importance of retirement savings for families making less than $150,000 per year? Of course not.
Fortunately, Robert A. Kerzner, president and CEO of LIMRA, sets matters straight in a letter to the editor published by the Journal. He shows that when you look at the number of policies, rather than the dollar value, life insurance continues to serve its core constituency — the middle class. Some 73% of permanent life insurance policies are held by the middle market — that is, those with household incomes less than $100,000 a year. These families are also buying 72% of new permanent life policies.
Life insurance is doing its job. It's just as important now as ever as a safety net for the middle class. And with added economic pressures in recent years, the tax-free status of life insurance benefits may be even more important than ever. “This is not the time to make buying life insurance less attractive,” Kerzner writes to the Journal. “Collectively, we should be finding more ways to encourage consumers to get the coverage they need.”