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.

Ryan Chittum , a former Wall Street Journal reporter, is deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu.