We’ve all heard about the certainty of death and taxes. Yet despite the ubiquity of this commonplace notion, few people ever reveal very much about either topic. Talk of death casts a pall over everything, and is a sure conversation-stopper at a party (try it!). When it comes to taxes, everybody complains about them, but few reveal how much money they make or what they pay in taxes.
Why are these two certainties of life shrouded in such mystery? And how, for heaven’s sake, did they ever get linked? Of the two, death is the only one that’s truly certain, while taxes, on the other hand, doth make scofflaws of us all. An entire accounting specialty has arisen precisely for the purpose of helping people avoid taxes. Many perfectly decent and sane friends of mine go well out of their way to avoid taxes; it’s not that they disobey the law exactly, but if there is a way to remotely call a buck spent tax deductible, they do it.
There is a quality about money that stabs us right in the heart, and perhaps therein lays the connection to death. In this culture, money means life and thus the lack of money means death. To the extent they represent a potential reduction of our money, taxes produce fear akin to the fear of death. Or maybe not; it’s just my speculation.
Speaking of speculation, I was fascinated to read an article in the New York Times about a new growth industry, specifically the purchase of high-value life insurance policy benefits from the rich elderly by speculators looking for a high-return investment. It works like this: a wealthy elderly person who would normally discontinue a high-payout life insurance policy is persuaded to continue to keep it in force. The policy-holder sells his or her interest in the policy death benefits to an investment group for a lump sum, say 30 percent of the death benefit. On a policy of $5 million, the policy holder gets $1.5 million to enjoy right now. The investors continue to pay the premium for the policy holder, hoping that death comes sooner rather than later, and that the policy death benefit payout exceeds the cost of the premiums they pay. If the policy holder dies quickly, the savvy investors get rich.
The net effect of this is that the carefully crafted actuarial system of the insurance carrier is rendered obsolete. Insurance policies that would normally be cancelled instead continue, and thus payouts that would never have been made get paid after all. It seems exceedingly greedy and perverse, but to the extent that life insurance constitutes betting against one’s own life, it has always seemed a bit perverse.
I suppose the accountants and the IRS will have a field day with this new wrinkle. Is the payment to the policy holder a loan or pre-payment? If it is a loan, is it forgiven upon death? Under what conditions is it taxable? When the policy holder dies, does the investment group pay taxes on the insurance policy payout? I see a whole new career path arising, and myriad tax rulings by the IRS about this type of death investment. Las Vegas will place odds on high-profile policy holders and Wall Street will start to trade them as securities on the open market. Think about it; you and your dead body could be listed in the financial section of the newspaper as the next hot stock.
