RE - Life Insurance paid for by Annual Gifting to reduce Estate taxes (on average):
Again, it's not an investment. It will not help the insured person in any way, shape, or form. It will only allow that person to share their accumulated wealth with their family, rather than 300 million wonderful Americans. If said person prefers to be generous and share it with all of America, they can simply not buy a policy and let the kids pay the tax out of the inheritance.
I'm presenting you with facts and premiums that are real and tangible. You are giving me back the same old tired line that insurance companies win and people lose. You know of anywhere else you can put in $37k per year at 70 years old and get back $3 million tax free?
You are giving me a specific case, not averages. No question that Life Insurance 'works' in specific cases that you can present, but we generally can't know that going into the 'deal'. We have to assume averages going in.
Let's take it step-by-step. To keep it simple, let's assume the look-back provision doesn't apply to this case (it would be a wash anyway I think):
A) A person with an expected Estate Tax liability gifts $13K per year each to two individuals. One individual uses the $13K to buy a Life Insurance policy on the person doing the gifting. The other invests it in something reasonable for long term growth.
B) For the "no-ins" person, that $13K and future gains are now exempt from all Estate Taxes. Done deal. Future realized gains would be subject to income taxes. He has a pile of money that grows each year.
C) For the "with-ins" person, they give up the $13K to the ins company each year.
So some date in the future the gift-giver dies. It seems pretty simple, either the insurance policy pays out more than the accumulated value of the premiums or it doesn't. Both piles of money escaped the Estate Tax.
If I put my money into an insurance policy with the hopes that the pay off will be greater than if I invested the money on my own, that sure sounds like a "investment decision" to me. What else is it?
And it seems reasonable that the insurance company can't give away more than they take in on average and stay in business. And there is nothing wrong with that, I'm not 'demonizing' insurance companies at all. I have some insurance policies and I expect that on average I will pay more than I receive. But I am willing to pay to mitigate risk in those cases. It's a fair deal, and one I regularly turn own when I feel I can self-insure.
I'm going to repeat the above quote to address it separately:
If said person prefers to be generous and share it with all of America, they can simply not buy a policy and let the kids pay the tax out of the inheritance.
This is where the insurance reps are tricky (recall your "worth their salt" comment). It's
not either/or, yet that is how you present it here. It is not "buy the insurance or do nothing, so the insurance is better". To be apples-apples, you have to assume gifting in each case, and then the applicable question becomes "is applying the gifting to insurance better than letting the gifting accumulate in an account?".
-ERD50