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The Almighty Buck

Silicon Valley Billionaire Takes Out $201 Million Life Insurance Policy 300

Hugh Pickens DOT Com writes "The Mercury News reports that somewhere in Silicon Valley, a 'mystery billionaire' has bought what the Guinness Book of World Records says is the most valuable life insurance policy in history — a policy that will pay his survivors a cool $201 million. Was it Larry Ellison? Eric Schmidt? Elon Musk? Zuck? Nobody knows because the name of the buyer is a closely guarded secret. 'We don't want hit men running around Palo Alto trying to find him — or members of his own estate,' joked Dovi Frances, the Southern California financial services provider who sold the policy. By last count, California boasts 111 billionaires with more than a third of them in tech, while San Francisco has 20 billionaires alone so it could be any of them. But why does a billionaire even need to take out life insurance when he or she has so many other assets. 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. 'In California, there are state death taxes that are exceptionally high (45 percent),' says Frances adding that the policy is actually a combination of more than two dozen policies, underwritten by 19 different insurers because if any single company had to pay out such a lavish benefit, it could be crippling. 'If your properties are leveraged then those loans are called immediately and need to be paid off, you want to hedge yourself against such a risk so [your beneficiary] can receive the proceeds without being exposed to taxes.'"
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Silicon Valley Billionaire Takes Out $201 Million Life Insurance Policy

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  • Estate Taxes (Score:5, Insightful)

    by dcollins ( 135727 ) on Monday March 17, 2014 @09:25AM (#46505627) Homepage

    Don't be a douche by calling them "death taxes".

    • That is what they are.
      You pay property taxes on a yearly basis, and death taxes when you die. And estate taxes as a title is just misleading.

      Death tax/death duties have been a legitimate term since these tax's introduction in Britain.

      • by AdamHaun ( 43173 )

        You pay property taxes on a yearly basis, and death taxes when you die.

        Technically, *you* don't pay anything -- you're dead. The people receiving unearned income from your estate pay the taxes.

    • "... a death must occur before any tax on the deceased's assets can be realized ... the tax rate is determined by the value of the deceased's assets rather than the amount each inheritor receives. Neither the number of inheritors nor the size of each inheritor's portion factors into the calculations for rate of the Estate Tax..."

      The tax was levied because the person died. 'Death tax' seems like a proper description.

    • by fermion ( 181285 )
      One modern capitalist innovation is this type of tax. Before, families could build up property with no penalty. One could sit on a property and do nothing with it. With taxes, if one did were not utilizing the property, there was incentive to sell it to someone who could exploit it. You see this problem in developing countries where there is much less productivity than in developed country. Some thinks this is good. That advancements are bad.
  • Just need the insurance, as, well, insurance... in case this billionaire dies before they get a chance to retire outside of California, I suspect.
  • by sootman ( 158191 ) on Monday March 17, 2014 @09:29AM (#46505691) Homepage Journal

    "But why does a billionaire even need to take out life insurance when he or she has so many other assets. The most likely answer to this question is taxes and estate planning. Upon death, an estate would be liable..."

    Thanks a lot for stifling the need for lots of uninformed commentary, guys. I was looking forward to lots of basement-dwelling idiots spouting off about how stupid this billionaire must be. Now I have to find somewhere else to spend my morning.

    To the reddit! /me gone

  • It wasn't me. Just sayin'.
  • There is no good reason for the financial services company that bundled these policies to be allowed to disclose any of this. I certainly would not use a company that can't keep their mouths shut.

  • ... To buy insurance. Buying insurance is a guaranteed loss of money. A significant loss, because not only does the insurance company have to cover the expense of running an entire company, but they need to make their own owners rich. Insurance can make sense for poor people, but for a rich people, no way.

    Instead of giving the insurance company money, which they probably invest in some high interest thing, take 30 percent off of the top and then use the rest to pay off the life insurance at death, just inve

    • Because the insurance payout won't be taxed & the overhead costs of the insurance policy are still likely to be less than the 45% inheritance tax that would otherwise be charged.
      It's a loophole to make sure a bigger share of your estate lands in the hands of your heirs, rather than in federal pockets.

    • It makes sense because you have better uses for your money than investing it in easy to liquid assets. For example, long term positions in privately held companies. However, your death could bring the need for cash. So, you are essentially paying a premium for the ability to make longer term investments, in the form of paying an insurance premium.

      Further, there are also questions of debt and leveraged positions. Being forced to liquidate a leveraged position at a specific point in time can be quite deva

    • by fermion ( 181285 )
      Some firms pay for life insurance as part of the executive package. Therefore this may be a way to increase the total compensation in a way acceptable to the board. Also such expenses are also tax deductible to the firm.

      Depending on this executive compensation, this level of life insurance may not be excessive. Larry Ellison is pay about $100 million, so this is only twice compensation. Life insurance is often available to a few times of income, so twice is not excessive.

    • Buying insurance is a guaranteed loss of money.

      That could not be more wrong. Insurance is way to protect against downside risk. It is a wager essentially. It prevents you from losing everything if catastrophic events occur. I have health insurance in case I get sick. While this is unlikely given my age and health, it is very possible and could be very expensive. I have homeowners insurance in case my house burns. I have a blanket policy in case something weird happens like a kid getting hurt on my lawn. I have car insurance to preserve the value

      • Yes which is why it is good for poor people, but there is no such thing as a billionaire losing everything because he had an unlikely accident and required a hospital stay, he just pays the 100K and moves on.

    • Hopefully I can address a few of your misconceptions:

      -Insurance companies (in the U.S., I can't speak for other countries) do not make high-return investments with their insurance reserves. Insurance regulators in the U.S. will not permit the risk involved. The only exception that I can think of is Berkshire Hathaway, which mainly gets away with it because it's run by Warren Buffett. To quote AFLAC, an insurer I picked at random: "Our overall portfolio is dominated by fixed-maturity securities. The major

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