Vanderbilt Law Review


Richard Goode

First Page



Life insurance policies usually combine pure insurance and saving features. This fact is recognized by the industry and by those who draw up national economic accounts but is not fully reflected in the income tax. None of the return on saving through life insurance is taxed to a policyholder prior to the maturity, redemption, or surrender of a policy. Part of the return, but apparently only a small fraction of the total, is taxed when policies mature for reasons other than the death of the insured or are redeemed or surrendered. Inasmuch as most forms of investment income are taxable, the present law discriminates in favor of saving through life insurance compared with other forms of saving and financial investment. This discrimination prompts questions of equity and economic policy. Is it fair to impose lower income taxes on those who are eligible for life insurance and who choose to save in this form than on others? Does the preferential income tax status of saving through life insurance induce a shift of resources from other fields, and if so what are the consequences for economic efficiency and growth