Uncertainty and turmoil are obviously two things that players in the financial services industry certainly want to avoid, indeed at all costs.

But, for the life insurance industry, the current uncertainty and turmoil regarding federal tax policy provides great opportunity.

The debate over tax policy in both the House and Senate ended August 3 when members of Congress finally left for an undeserved month-long recess.

And, it was totally contrived.

Members knew the debate over the so-called “Bush-era” tax cuts would lead nowhere, and that no decision would be made until after the November election.

But the huge spotlight on the debate was beneficial to the insurance industry because it illustrated to consumers that it is unclear what future tax policy would be.

To the astute consumer, it showed that while existing tax policy might be extended, for what period is unclear, under no circumstances will it get better than it is now.

That spells opportunity for insurance companies and agents because sealing in the gains created by the Bush tax cuts as amended in late 2010 for 2011 and 2012 opens a short but exciting selling environment for tax-advantaged insurance products.

Doug  Siegler, a partner at Sutherland Asbill & Brennan in Washington and a member of Sutherland’s Tax Practice Group, said the decision by Democrats to remove the estate tax provisions from tax legislation they were proposing appeared to be part of a new Democratic Party strategy to play hardball on tax issues.

“Although no one can predict how the looming expiration of the so-called ‘Bush-era tax cuts’ will ultimately play out, the withdrawal by Sen. Harry Reid, D-Nev, Senate majority leader, of the estate and gift provisions from his middle class tax bill would seem to indicate that there will be a separate fight on the estate and gift tax,” Siegler said.

He said a number of Democrats felt “stung” by the concession in 2010 that allowed an increase in the estate and gift exemptions to $5 million and a drop in the top tax rate of 35%, “and they may not be willing to make the same concession on these issues this time around.”

Siegler says the thinking of most tax practitioners is that once the election is over the most likely options are that Congress will decide to retain either the current system, or to return to the 2009 levels.

“I don’t think we will go back to the $1 million level,” Siegler said. But, he said “there is a substantial possibility that we will go back to the $3.5 million level.”

He also said that the current uncertainty is motivating the “wait and see folks” to take action to protect their assets.

“People who are protected from estates taxes under the current exemption/tax levels, and were ‘on the cusp’ now realize they might have a greater liability and could decide to establish an irrevocable trust,” Siegler said.

He said another option is to buy more insurance before the end of the year. “Familes with smaller and medium-sized estates who currently have insurance, and have taken a wait-and-see approach, are now more likely to face paying estate tax with the potential for a lower exemption rate and a higher tax rate.”

“They may now be taking steps to move the excess to an irrevocable life insurance trust,” he said.

“Wealthier folks are now looking at a smaller exemption and a higher tax rate and might acquire more insurance to provide liquidity so that their heirs don’t have to pay their estate tax,” Siegler said.

“There is renewed interest in those things right now,” Siegler said.

Adding to the uncertainty, Joe Lieber of Washington Analysis raises the specter that all the Bush-era tax cuts may expire.

He said that more and more Democrats are convincing themselves and touting the benefits of hitting the “fiscal cliff.”

Lieber said that some Democrats “espouse the positive budgetary/deficit implications [of allowing the Bush-era tax cuts to expire], and others note that allowing the Bush rates to expire, and therefore increase, “would allow Republicans to vote for a bill that cuts taxes from this new higher baseline, even if the final rates would be higher than current levels.”

Lieber said Washington Analysis “sees Democrats as hardening in their position, making it more difficult to reach an agreement in a lame duck session.”

In other words, as Siegler noted, uncertainty is creating a selling opportunity for insurers and agents as investors seek to lock-in the benefits of the current rates and estate tax policies.