Many tech executives in the Silicon Valley are worth millions and some have purchased life insurance policies to protect those millions once they are no longer there to do so.
But one individual went above and beyond the normal scope of life insurance policies. An unnamed Silicon Valley billionaire recently took out the largest life insurance policy ever at $201 million. This whopping policy is for good reason, however.
“The insured probably has assets of sufficient value to draw a sizable tax and justify the need for insurance; most likely that asset is a closely held business which is not ready to be sold or restricted shares of a public company,” says Steven Felsenthal, a tax and estate planning attorney at Sugar Felsenthal Grais & Hammer.
“The insured presumably doesn’t want his family to be forced to sell the business or the shares at an inopportune time or for a bargain price as a means to raise money and cover the taxes.”
Felsenthal explains that the most tax efficient way to purchase the policy would likely be in an irrevocable life insurance trust.
“The trust can be constructed in such a way that while the premiums paid for the insurance might be taxable in the trust creator’s estate, the death benefit would not be; essentially none of the premiums paid would purchase insurance that would benefit Uncle Sam,” adds Felsenthal.
“There are techniques that can even avoid taxability of the premiums in the trust creator’s estate, such as borrowing or split-dollar arrangements. This planning can be done, even more efficiently, for people who buy insurance policies with far fewer zeros, who have substantial estates but not mega estates.”
Previously, the record held for largest life insurance policy was attributed to record company mogul David Geffen for $100 million.
According to the Insurance Information Institute, other high profile policies were purchased by Dale Earnhardt and Heath Ledger.
When Dale Earnhardt was tragically killed in a 2001 NASCAR race gone wrong, his wife Teresa tried to claim his $3.7 million life insurance payout and was promptly denied. Richard Childress Racing had put in place a financial agreement that stated upon Dale Earnhardt’s death his wife would receive as much as $7 million from his life insurance policy issued by Omaha Insurance. RCR brought a lawsuit against Omaha Insurance for denying the claim made by Teresa because RCR then became responsible for paying the benefits instead.
When actor Heath Ledger passed away in 2007, his life insurance policy was said to be $10 million. However, the insurance company did not want to pay the policy because his death was ruled suspicious. He died of an accidental drug overdose and the insurance company suspected suicide. Another issue was that they suspected Ledger had lied when he filled out the application for his life insurance, not disclosing his use of prescription drugs.
For a look at what else $201 million can buy, click here.