Investing in a life insurance policy is smart for anyone who wants to make sure their family is provided for should a tragedy take place. Earlier this month, an unnamed tech investor billionaire took out a record-setting $201 million policy that will certainly accomplish that. SG, LLC, the California-based advisory firm that sold the policy is not legally allowed to release the name of the buyer, but narrowed it down to the 111 billionaires in the state.
For the average American, life insurance plans are certainly less valuable, and they are hardly ever as complex. The mystery billionaire’s policy will require yearly premiums in the millions and involves a whopping 19 different insurance companies. As a result, the schematics of the deal might be more amazing than its actual value.
So why would a billionaire want to take out a policy like this? What is the point?
Essentially, the policy will be helpful for tax reasons. California is one of the most-taxed states in the U.S. and policies like these are quite common, although not as expensive.
“It’s all about trust and estate planning,” said SG president and founder Dovi Frances. “Having a life insurance policy like this can protect significant assets.”
“If your properties are leveraged then those loans are called immediately and need to be paid off,” he added. “So if you want to head yourself against such a risk [your beneficiary] can receive the proceeds [from life insurance] without being exposed to taxes.”
“It is a large policy, but it depends on how it’s set up and the reasons behind it,” explains Carrie Quraishi, Estate Planning Attorney with Quraishi Law. “If it was set up as an ILIT, or Irrevocable Life Insurance Trust, it would be estate-tax free.”
In the future, even the wealthy should take note of policies like this. While $200 million might be exorbitant, individuals like Philip Seymour Hoffman, who failed to update his will and develop an effective estate plan, could lose millions.