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March 01, 2009 at 07:00 PM
With stock markets reaching levels not seen since the Clinton administration the former president has re-emerged to dispense advice to President Obama.
In fact, his suggestion that President Obama tell the American people that he is “hopeful,” and “completely convinced we’re gonna come through this” economic crisis in reasonable financial shape sounds like a relatively refreshing blast from the past.
So, despite the fact our minds are preoccupied with joblessness, homelessness, swindles and bankruptcies, in addition to plunging home values and staggering losses in our portfolios, Mr. Clinton’s suggestion is a very welcome antidote to the unrelenting negative outlook both in the Administration and the media.
This is especially true for life insurance carriers and agents, whose business suffered over the last 8 years, not only during the Internet and financial meltdowns, but from the Bush tax cuts.
These tax cuts, in 2001 and 2003, left the future of the estate tax in limbo for several years, adversely affecting sales of annuities, life insurance and other high-margin products.
Moreover, it increased the relative attractiveness of equity-based products at the expense of plain-vanilla insurance products held in both operating and retirement accounts, regardless of the income level of the owner.
That meant that the insurance industry was reduced to second fiddle as its competitors, at banks, brokerages, mutual funds and other investment enterprises, took in the lion’s share of new investments.
It forced the industry to make its products more attractive at the cost of lower margins and higher risk, as life carriers can now attest.
But, the current confidence-sapping economic turbulence is creating a flight to safety, and could provide the pendulum swing in investment philosophy that could benefit the life insurance industry. Another strong positive for the life insurance industry is the retention of the estate tax.
Moreover, last week the Obama administration unveiled its budget proposal for the new federal fiscal year, and made clear that the Bush tax cuts will not be renewed, and that taxpayers who earn more than $250,000 a year will be paying more taxes going forward as part of a deficit-reduction program.
That will also provide additional incentives to buy the tax-sheltered products that are the bread-and-butter of the life insurance industry.
A word of caution: That does not mean happy days are here again.
