Why Would a Billionaire Need a $201 Million Life Insurance Policy?

pile of $100 bills
The largest life insurance policy ever issued has gone to an unnamed California billionaire living in Silicon Valley for an incredible $201 million dollars, according to the Guinness Book of World Records. Who exactly the policy covers isn’t known other than it’s a billionaire who made his money in the tech industry. The record policy more than doubles the previous largest insurance policy which had been for $100 million.

Since the policy is so large, it had to be taken out with 19 different insurance companies. If a single insurance company had underwritten the policy, they would risk bankruptcy if the policy were ever to be collected on. The insurance policy also doesn’t come cheaply. The billionaire will have to pay over $1 million a year — somewhere in the low digit millions — as the premium for the policy.

The question which immediately comes to mind is, “Why would someone with a billion dollars need a life insurance policy at all, let alone one for $201 million?” It’s a good question, especially since insurance is usually purchased by those who wouldn’t have the money to pay for something if a disaster would happen. A person who is rich enough to find himself on the world’s richest people list would certainly not fall into that category.

For the average person, taking out a large insurance policy while having a large net worth doesn’t make much sense. Life insurance is to cover lost wages resulting from the untimely death of a spouse, where the earnings were needed for the survival of the family. Those families with a large net worth can get by without any additional income since they already have a good amount of money stocked away. In a sense, they are already self-insured against such a tragedy due to the money they already have. So why would a billionaire take out such a large policy?

The most likely answer to this question is taxes and estate planning. Upon death, an estate would be liable to pay off loans on any leveraged properties, plus a lot of money as part of the death taxes owed. This could force the estate to liquidate holdings to raise the money to pay off these liabilities even if it weren’t the most opportune time to sell the assets. By taking out the life insurance policy, it would give the estate more flexibility in paying off the taxes and other debts owed, without necessarily having to sell assets to do so.

It should be noted that this isn’t an investment made by the billionaire. The companies underwriting the policy get the premiums and the interest they earn on them which should pay them more than the policy if the billionaire lives the quality life that is expected for him. Their risk is that he may die unexpectedly before he should. The insurance companies have crunched the numbers and believe that they will make money on this policy. If they didn’t believe that, they would have never have issued it.

Life insurance can be an important tool to help protect the quality of life of others in the family should there be an untimely death, and the loss of the major source of income for the family. For most people, however, the goal should be to create enough net worth so that life insurance isn’t needed.

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37 Responses to Why Would a Billionaire Need a $201 Million Life Insurance Policy?

  1. JoshL says:

    Life insurance is tax advantaged in this country. More than just paying off estate taxes on other estate, you can completely avoid taxes on cash value growth of the policy itself when the policy is paid out on death. Don’t get scammy TV life insurance confused with the real policies which get issued as part of estate planning for the wealthy.

  2. Stan Kerns says:

    Well–you could take 201 million and put it at interest–so it would be there–or you could take 201 million and do with it what ever you do to need a policy that large–if the few million a year it costs to have the insurance is less than what return you can get from using the money in business–then buy the policy–I would bet that anyone who is smart enough to make billions is smart enough to work the numbers.

  3. Chris says:

    My guess would be Elon Musk.

  4. mike p says:

    Are the proceeds tax fee?

  5. DeeCee says:

    Greed knows no bounds.

  6. Peter says:

    This article is perhaps the worst and most naive description of the purpose of life insurance I have ever read. Speculating about what one person’s reason for buying life insurance! What about charitable giving? What about insuring the value of his life for his business(es)?

  7. Jordan says:

    You are right. (roll eyes)

    We should instead use force, to make him unable to voluntarily buy whatever life insurance policy he desires…

    What does his (very costly by the way) choice have to do with you? You do acknowledge that people pay FAR more into their policies than they receive, so what is the problem exactly?

    Besides, why do you feel that you can say what people “should” and “shouldn’t” do? This was a voluntary contract between a company and an individual. Who made you judge jury and executioner? He is his own moral agent, and should NOT be subject to your (or anyone elses) random whim.

    Shame on you for condemning a man’s totally ethical financial decisions right after his death. Really great article you have written here…

  8. Dwight Schrute says:

    Estate taxes.

  9. Tax Man says:

    Obviously this purchase was not made for the life insurance component. There are an infinite amount of ways to purchase a life insurance policy. I’m sure this policy was designed so that the premiums would max fund the policy but stay just below the level that the policy would become a modified endowment contract. If setup this way the policy is a powerful estate planning tool. The internal growth of the premiums stays tax advantaged and loans can be taken from the policy tax free. If tied to an index the premiums have great potential for growth as well. Ultimately the policy would never lapse and all the premiums pass to the beneficiaries tax free as well. A win win situation for everyone….well almost, excluding Uncle Sam.

  10. Jim B says:

    My first thought was Larry Ellison, but he is old enough that a $201M policy would cost a lot more than a few million a year.

    Anyway, things don’t make sense. An estate worth billions could easily secure a $200M loan which would achieve the same ends, namely taking care of short term obligations and buying time to make the long term adjustments necessary for the estate (eg, selling shares at a better time).

  11. tripp says:

    This is not the largest policy ever. I have heard of bigger.

  12. Michael says:

    Don’t be so naive Peter

  13. Josh says:

    If you don’t understand the logic behind why someone,”wealthy” or otherwise, would do this, don’t criticize. You’re only advertising your ignorance!

  14. Hana Kim says:

    LOL and I thought my $5 million policy from Life Ant was a lot. I’m sure his premiums are a bit more than the $50/month I pay though. His beneficiaries are certainly gonna have some fun with THAT money.

  15. MadSat says:

    Not a bad idea, Musk would certainly be a candidate as he’s invested a great deal of money in SpaceX and Tesla, and they’d suffer if his estate had to sell stock to cover estate taxes. That’s probably what this whole deal is about, a maneuver to ensure estate tax is covered.

    And to those “anti tax kneejerk people”, no, I’m absolutely not against the estate tax. It serves a valuable purpose, which is preventing money from running uphill too rapidly. This has been a problem since the invention of money and loaning money, it’s even discussed in the Old Testament and is the purpose of the “year of Jubilee”.

    I frankly don’t care if the government burns the money, gives it to aliens or dumps it in the bottom of the ocean, we CANNOT have any pretense at a democratic society if one person in thousands controls so much money they can laugh at the laws and rules of society. And we are very close to that already.

  16. Josh says:

    It’s john chambers. And Cisco is paying the premiums.

  17. BillyG says:

    Greed? By whom? The insurance companies who believe they will make a profit? The Government for its estate tax policies?

    Certainly not an individual who wants his legacy to remain intact…that’s not greed is it? Seems reasonable to me.

  18. Jose79845 says:

    A $201 million policy provides a special interest to the insurance company to keep the insured alive. If the government tries to assassinate the insured, the insurance company will be there to stop them.

  19. John says:

    Zuckerberg. Think aboout it. Insurance company need to make money. Musk is 40ish25 years at 1 million, Ellison 60ish not much made here. Zuckerberg about 30ish 35 year at 1 million invested that is the ticket.

  20. RG Usenet says:

    Hana, who’s giving you a $5mil policy for 50bucks a month? Are you sure? Even a term policy will cost few hundred.

    When I have billions I would diversify my investments and whole life is another venue. A 200mil policy with dividends would grow nicely with little or no risk and tax free.

  21. AFalseProfit says:

    You, sir, are a buffoon.

    Valuable purpose… in your opinion only. If a person earns the money (legally) they are entitled to keep it… and should be able to give it to their heirs without Marxist losers trying to take what isn’t rightly theirs.

  22. ElectricGuy says:

    Yet we have enduring financial dynasties 100 years after the estate tax was enacted. And this insurance policy is one reason why. That said, I doubt it will be in place form ore tn a10 to 15 years, while our nameless billionaire initiates other protective measures.

    The estate tax is easily avoided or mitigated by these enduring large estates, leaving those newly rich, and only moderately so, to pay the bill. Build a business over a few million in value and lose half of everything over the threshold. That can force a sale or other disasterous consequences. See the movie “Secretariat’ for a decent example of the consequences to those of more moderate means.

    In short, the status quo preserves a large gap between those who have (lots) and those who do not. If you truly wanted to level things, you’d want to prevent any estate planning and tax avoidance mechanisms like this insurance policy.

  23. ElectricGuy says:

    If the premiums are paid after tax, which is the norm.

  24. MoneyMan says:

    The 99% should rejoice. This guy is prefunding his estate taxes. The whole idea is to get it out of there by sticking it in an ILIT, pass it to the benes income and estate tax free, and ultimately make them whole. Funny how people hate on the rich. Dont like it? Get rich. Would have loved to have seen the commission on that one. MoneyMan!!!!!!!!!!!!!!!!!!!!!!!!!

  25. Wajim says:

    “If a single insurance company had underwritten the policy, they would risk bankruptcy if the policy were ever to be collected on.”

    Um, yes . . . and have you any idea of the size of some of our larger insurance companies? Met Life, Prudential and Northwestern Mutual, for instance, each sit on a $1T pile of money. There are many more, of equal, larger, or somewhat smaller size, most of which could take a one-time $200M hit without failing. Also, there are individual PEOPLE on the planet who could theoretically pay that size claim easily, in cash, with no real risk of bankruptcy.

    This reads like the first draft of a sophomore term paper.

  26. ElectricGuy says:

    In fact, the article gets it wrong on premiums and is woefully incomplete re. estate planning.

    The sum of premiums is not expected to exceed the face value. As an example, a universal life policy for a healthy 40 year old male will be about $500 per month for a $1M policy. $6K per year for 40 more years will make a total premium of $300K.

    Insurance companies make their money by investing the premiums, not hoping to collect more than the death benefit in premiums.

    Over a period of a decade or so, expect to see the guy complete his estate planning and cut his cash needs dramatically.

  27. ElectricGuy says:

    Oops, that should be 50 more years.

  28. ElectricGuy says:

    Think shorter term than a policy for life. For a decade or so, this is a cheap way of meeting an estate’s cash needs, while giving plenty of time for a more cost effective mechanism to be put in place.

  29. Louis Kim says:

    Gotta be a whole life policy of some type. $201 million w/ a multi million premium and it’s a young dude.

    Whole life is maybe $100 coverage for every $1 in premiums for someone in good health, safe lifestyle and quite young. So this $201 mill policy probably costs $2.1 million in annual premiums.

    Cash balance builds over time. First 5 years it’s crap, but give it a couple decades and you can get back more than what you put in. Some can get back all the money they paid in premiums in maybe 12-15 years.

    Considering other safe investments such as bonds require an immediate inlay to be feasible, this guy only puts a fraction down each year and gets immediate full coverage and over time gets the same thing anyway.

    Rich are rich for a reason.

  30. Dave C. says:

    It’s not why does a Billionaire need but why would he want this? One, life insurance is income tax free (and in California means 50%+ state/federal), two, it’s non-correlated to other assets, three, the counter party (insurance company) is state regulated, industry has 100+ year promise fulfillment history. Life insurance, as a family global allocation, helps not hurts diversification. Lastly, life insurance as an “family asset class” has option value in that it’s the only asset that gets “better” if you die soon. If smart people are buying this product, there must be a reason.

    There is 18 Trillion of life insurance in the US – it is the largest asset by face amount but it’s the “forgotten asset”.

  31. mdperson says:

    Agreed…this information is inaccurate. I know of a $300M policy that has been issued

  32. Brian says:

    When you look at the federal and state tax rates this is actually a smart move!

  33. Rich W. says:

    As a recently retired life insurance agent ranked in the
    top agents in the world. Member of the Million Dollar Rountable’s Top of the Table for decades, (Top 1300 agents), in the world (Estimated Life Agents 3.1 Million from 72 Countries and Territories), and ranked in the Top 400 agents in the
    United States (Many year Member of the “International Forum.”) I would guess that this was either a Chairitable Giving Case, a Premium Finance Case, or simply an Estate Planning Case or a Business Continuation Plan which are all four ways to accomplish Estate Planning. I have written a few cases with Face Amounts well over 30,000,000.
    This individual probably employs a large number of employees and wants to insure that the Company be given to his Aires instead of the IRS. Life Insurance is the only way to accomplish this for pennies on the dollar. Remember this individual would have an Irrevocable Life Insurance Trust set up to own the policy to keep it put of his Estate. If he died right now even with his $5,000,000 exclusion or $10,000,000 if he is married and has a Living Trust his Estate Taxes due in 9 months + 1 day would be, if he was worth $1 Billion approximately would be $550,000,000 if his Aires don’t have the cash to pay that sum to the IRS, the Government would come in seize all the assets, sell them at (Auction), this is called Piece Meal Liquidation. This would put all of the employes out of work, his family would be broke and guess what those employees may be your relatives. So before you condem someone, their attorneys, accountants, and the agent who placed this case idiots take a look at your statement once again. Remember “Their is a Principal that will keep a man in everlasting IGNORANCE, that Principal is CONTEMPT PRIOR TO INVESTIGATION.’

  34. Rich W. says:

    Tax man I disagree with you on several statements you made. First off in an Estate Planning case such as this one the individual does not want any incidence of ownership. You state that he should run the premiums just below the MEC limits, MODIFIED ENDOWMENT CONTRACT limit. Then you state he could take tax free cash loans against his cash value. This is a Billionaire, he doesn’t want to purchase this policy for cash values, he wants as much tax free death as possible. Since he doesn’t want any incidence of ownership, he will not be able to access the cash value. That would be up to his trustees who control the ILIT, IRREVOCABLE LIFE INSURANCE TRUST or Business Continuation policy owned by his Corporation. The latter would prevent him from accessing the cash values of the policy without being fully taxed on any moneys borrowed from the policy. Remember the PS58 charts are no longer usable when using Split Dollar or Reverse Split Dollar policies, so no real leverage there by trying to Arbitrage his tax bracket with his Corporations Tax Bracket.

  35. Rich W. says:


  36. Rich W. CLU, ChFC, RFC, RIA says:

    Metropolitan Life is the largest US based Life Insurance company. They have a net worth of close to a Trillion. However no Life Insurance Company is going to retain more than 25 Billion in house, the only one I know who will retain that much is John Hancock and perhaps Met and Prudential. Most companies retention levels are much lower even with reinsurance they may only be able to issue a 7-10 Million dollar Face Amount thus it took 14 companies to insure this Jumbo case. They all have in house Retention Levels, for face amounts over 20-30 million $500,000,000 companies and up are still buying some reinsurance, to limit their exposure to risk. Life Insurance companies that have a net worth of 500,000,000 only have maybe 10% of that liquid, since they are only netting 4.5 – 6% profit, net of expenses. Remember they do not invest any more than 1-4% in the stock market, the rest is invested in Long, Mid and Short Term, (commercial paper), Bond portfolios and Commercial Real Estate. Since they are limited by the Government and the rating services, Duff & Phelps, Moody’s, AM Best, Fitch and Standard & Poor. Who rate them as High as AAA thru D- or in AM Bests case A++ is their highest and F is lowest (Insolvency).

  37. shira Nelson says:

    i need two hundred one million dollar life insurance life insurance email me

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