In the early 1980s, payroll taxes in Jamaica were punishingly high. Many employees faced effective tax rates over 50%. To soften the burden, governments provided special credits, such as deductions for children, charitable giving, and even ownership of life insurance policies. While well-intentioned, this system encouraged people to focus on tax avoidance strategies rather than true financial planning.

Then came 1985. The government introduced a new threshold-based system, lowering the maximum tax rate to 25% and removing many of the special credits. At the time, critics predicted catastrophe for industries like life insurance. Without the “tax incentive,” they argued, no one would bother buying policies.

They couldn’t have been more wrong.

The Psychology of Incentives

What actually happened was profound: life insurance sales exploded. Why? Because the psychology of money shifted. When taxes were sky-high, employees often viewed insurance as little more than a convenient tax shelter. But once the rates dropped, the focus moved away from chasing tax breaks and toward making sound financial choices for the right reasons.

Instead of buying policies to reduce taxes, people began buying insurance to:
• Protect their families’ future,
• Build long-term financial security, and
• Create a meaningful legacy.

In other words, life insurance returned to its original purpose: providing peace of mind and financial stability.

The Laffer Curve in Action

The 1985 reforms also proved a broader economic principle, often illustrated by the Laffer Curve. By reducing tax rates, the government actually boosted revenue because compliance increased. Workers were more willing to pay a fair 25% than to hunt for loopholes under a 50%+ system.

In the same way, when the artificial incentive of tax credits disappeared, people didn’t abandon life insurance. They embraced it more than ever, because now they were making decisions based on real needs rather than temporary tax advantages.

Lessons for Today

This story offers two powerful lessons:
1. Simplicity breeds compliance and growth. Just as tax compliance rose under a simpler system, individuals are more likely to commit to insurance when it’s tied to clear, meaningful goals rather than complicated incentives.
2. Purpose drives sustainability. Purchases made for the right reasons, family protection, financial security, legacy, are far more enduring than those driven by short-term tax benefits.

Today, employees and families continue to face financial uncertainty. Tax codes may change, but the fundamental need for security and protection remains. The 1985 reforms remind us that life insurance is strongest when it’s not just a line item on a tax return, but a cornerstone of a well-designed financial plan.

At Plan for Purpose, we help individuals and families build security, design purpose-driven retirements, and create lasting legacies through values-based financial planning. Whether you’re just starting out or preparing for your next chapter, our mission is to help you align your finances with what matters most.

Book a one-on-one consultation with us at https://planforpurpose.com for deeper insights on how we can serve you. Also purchase a copy of our book “More Than Just a Payout: How Life Insurance Builds Security and Opportunity at https://a.co/d/eAEQe78

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