LET'S TACKLE INSURANCE #2

My eyes glaze over and I start hyperventilating when I talk about insurance. But it must be addressed in relation to the FairTax, so here goes:

For businesses, both the premiums and the benefits are treated as a tax-free business input. The following comparisons address insurance purchased for personal use only.

PROPERTY/CASUALTY INSURANCE

Income Tax: No tax benefits or tax credits. Like other services, embedded taxes are included in the price of the premiums.

FairTax: The premium is subject to the sales tax. The benefit is received tax free and includes a credit to prepay taxes that are due when consumed. (Remember, with the FairTax, you only have to pay a tax once, when you buy something)

LIFE INSURANCE

The FairTax treats both term and cash value life insurance as well or better than the income tax system does.

Premiums-------------

Income Tax: Premium is paid with after-tax dollars.

FairTax: Only the “term” component of a premium is taxed, not the “investment” component.

Cash Value-------------

Income Tax: Cash values grow tax deferred and is taxed as ordinary income. The principal is not taxed; however, it is paid for with after-tax dollars.

FairTax: Neither the principal nor the interest is taxed. They only become taxable if used to purchase new goods or services, which should be lower with embedded taxes backed out of the equation.

Death Benefit-------------

Income Tax: A death benefit is income tax free, but sometimes subjected to estate taxes.

FairTax: A death benefit is tax free PLUS the beneficiary receives a credit equal to 23% of the benefit to prepay any sales taxes due when spent. No estate taxes, ever again!

This is enough to digest for today. I should be able to finish up the insurance stuff tomorrow and then hopefully we will find a more enjoyable topic. Meanwhile, you insurance lovers can get lots more in-depth information in the White Pages of the Research section of the FairTax website.