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Life Health > Life Insurance

The Masada Complex

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According to the historian Josephus, in the year A.D. 73 a band of trapped zealots faced a terrible decision. After a long siege by the Roman Flavius Silva, it became apparent that Masada, the rock fortress sheltering the zealots, was doomed. The terrible decision then was to decide between death or surrender to the vengeance of Rome. The people of Masada chose death by their own hands.

Masada is one of the great stories of a people’s struggle against tyranny. However, the incident also has been used to symbolize man’s tendency toward self-destruction when faced with hard choices. In a considerably less dramatic sense, but nonetheless important, our industry occasionally seems bent on succumbing to a “Masada Complex” in the choices we make. The choice between short-term prosperity and long-term survival is most often fraught with danger and complications.

The prospect of short-term profit is very appealing, and there are always those willing to jump on the bandwagon, no matter what the long-term costs. Despite repeated warnings from industry leaders, questionable products and marketing strategies do emerge on a regular basis. Over the years I have watched audiences turn a deaf ear to warnings of impending problems and then heard shouts of anger when regulators or lawmakers slammed the door on such schemes.

At such times we often hear complaints that the government is “sticking its nose into our business” and that we as an industry are always in the position of reacting rather than being proactive (whatever that means). The fact is the truth is exactly the opposite. The industry is the creative and innovative segment of the marketplace and government is reactive to us. We create top-heavy pension plans, single premium policy abuses, LILACs, investor-owned policies and on and on–then government reacts. Unfortunately when government reacts the damage is not always limited to the offending product or marketing ploy.

At one time, conventional wisdom held that “we tax ourselves” through our elected representatives. The hope was they would be fair in distributing the burden. In recent times this philosophy has given way to what many term an “adversary system” of taxation. Under this concept government is viewed as the adversary and accepted practice entails reaching for every possible advantage, with government reacting by challenges to the overzealous.

The adversary system has spawned a large body of tax planners, which include lawyers, accountants and financial planners of all stripes as well as insurance people. It should be noted there is an important distinction between life insurance practitioners and most others who work in this area. In reaching for tax advantages for their clients, lawyers or accountants incur little or no downside risk to their practice so long as they have advised the client of the risks involved. Moreover, whether the plan succeeds or fails, the services of this type of advisor are still required to resolve the matter.

By contrast, in the case of life insurance people, their attempts to obtain an advantage usually involve a product rather than just a service. The downside risk in this instance is substantial and comes in the form of governmental reaction that may change the way a product is taxed and therefore its marketability. That is how we got the “modified endowment” rules and a host of other restrictions on our products. It is worth noting that this issue is not limited to the taxation of products. We have witnessed in the past when insurance companies were overzealous in their own tax planning, lawmakers were quick to plug the loopholes. A reasonable amount of tax is expected from all business–when that premise is violated, the “Masada Complex” usually comes into play and the consequences can be painful and long lasting.

At a time when life insurance people limited their activities primarily to the sale of various insurance products, there was, I believe, a stronger sense of stewardship toward the tax privileges we enjoyed. I am not sure that same level of commitment exists today.

There is, I believe, ample evidence to support the foregoing proposition. Most agents today sell a wider range of products and so, if one door closes, it is easier to gravitate to other products. While I am a firm believer in the notion that we through life insurance can do what no one else can do, there is no guarantee the tax law changes cannot weaken that position.

It is also evident that there is less support today for an organization that has been the guardian of our environment for more than 115 years. While it is true the size of the field force has declined in recent years, the numbers left do not suggest the level of support for the National Association of Insurance and Financial Advisors, and all that it does, should be as low as the present level.

In September we will once again observe and promote “Life Insurance Awareness Month.” It is a time to remind the public of the value and importance of our products and services. But the reminder will be hollow if we do not affirm a greater level of commitment of ourselves to the future of our business. Neglect and abuse are also forms of the “Masada Complex” and in it everyone loses.


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