The Wall Street Journal is excellent today in a page-one story on how the life-insurance industry has evolved into something of a tax haven for the rich.

Basically, life insurance has increasingly become a way to invest and not pay even the capital-gains rate, which is about 60 percent lower (for long-term investments) than the top income-tax rate. The Journal’s Mark Maremont and Leslie Scism, two of the paper’s best journalists, report that this has happened as life insurance has become less important as a safety net for the non-rich—overall policy sales are down nearly half over the last quarter-century.

And it costs taxpayers a lot of money: About $265 billion over the next decade. Who holds these tax-free policies?

According to Federal Reserve survey data, 22% of assets accumulated tax-free in whole-life and universal-life policies were held by the wealthiest 1% of U.S. families in 2007—those with more than $8.4 million in net worth. More broadly, 55% of the assets in such policies were held by the wealthiest 10% of families. The bottom half by net worth held 6.5% of these assets.

The dog that doesn’t bark here, unfortunately, is overall income inequality: These numbers roughly jibe with overall (adjusted gross) income numbers and the trend toward inequality. In 2007, the top 1 percent took in 23 percent of all income, while the top 10 percent took home 48 percent. (Wealth is even more concentrated: The top 1 percent has more than twice the wealth of the bottom 80 percent: 35 percent of the country’s wealth for the richest one in a hundred compared to a pitiful 15 percent for the poorest eighty of a hundred.)

But aside from that miss, this is great work. We get some context on the history of life-insurance, including in the excellent lede, and the industry’s tax exemption, plus some good anecdotal reporting, including this:

One client is Maryanne Ingemanson, 77 years old, who made a fortune in California real-estate development and now lives on the shores of Lake Tahoe, Nev. A complex plan set up by Mr. Oshins has moved 90% of her net worth into a “dynasty trust” for heirs intended to be passed on tax-free for many generations, she says. A key element is a $20 million policy on the lives of both her and her late husband, which pays out after both are dead.

And this from a conference of insurance agents:

Another expert gave a case study involving a wealthy couple with a family business. He said that, by using a structure combining giant life-insurance policies with trusts and limited partnerships, he cut their estimated future estate-tax bill to less than $9 million, from $46 million.

This is just one of the many ways the rich keep their tax bills down. Remember, the overall effective tax rate, including federal, state, and local taxes for the top 1 percent was 30.9 percent—well below the 35 percent top federal tax bracket and the estate-tax rate (when it comes back) of 55 percent.

This one’s a real eye-opening piece. Applaud the Journal for digging into this undercovered policy issue.

Further Reading:

Audit Interview: Mark Maremont. “Journalism, unfortunately—and even more these days—seems to be backward-looking.”

Old-Fashioned WSJ Leder Spotted in the Wild.

“The Insurance Hoax” and the Business Press
: Bloomberg Markets’s latest cover story and a Times piece perform a valuable service; Forbes and WSJ editorialists blow key Katrina fact.

If you'd like to get email from CJR writers and editors, add your email address to our newsletter roll and we'll be in touch.

Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum.