Many are still perplexed at why the super-rich would have to purchase life insurance. Don’t they already enough for their heirs to receive once they pass away? This is not helped by information of the most significant sum that was doled out for an insurance policy. A Silicon Valley billionaire spent $201 million on an insurance policy, and though he/she is unnamed, the Guinness Book of Records confirmed this. In fact, this policy was so enormous that it tasked 19 different insurers to have it underwritten. So why would such a rich fellow need such a significant policy?
One reason billionaires buy life insurance is to safeguard their estate or for estate planning. They take up life insurance because they want to protect their massive homes, vast assets, businesses, golf courses and to cater for their liquidity needs. Since these individuals are in the habit of taking up loans, their estates are often tied up as hard assets. This means that if they were to die before paying the loans, the assets would be liquidated to raise the required money. However, with life insurance in place, the assets will not be liquidated as it provides for the money that is required to settle the tax obligations.
Another reason the uberwealthy take up life insurance is to avoid taxes. With life insurance, they can take up loans which are not subject to taxes. They also enjoy low-interest rates. Now, these loans are to be paid in full once the borrower dies. And as we saw earlier, if they were to die before completion, their assets would not be liquidated. Various entrepreneurs are recorded to have built or saved their businesses on the back of life insurance. For example, Walt Disney created his amusement park by borrowing a large part of the money with the cash value of his life insurance as collateral. Earlier on, he had failed to secure any financing.
Another reason billionaires purchase life insurance is for estate equalization. The assets that these people own might be illiquid and thus challenging to share equally among their children. However, with life insurance, they can achieve financial fairness.
Billionaires also opt for life insurance because of the privacy it provides. It protects the monies involved in the policy and also prevents the funds from being subject to unjust lawsuits.
By now, it should be clear why billionaires will spend millions of dollars on life insurance. And even if President Trump intends on doing away with an estate tax, this will not prevent billionaires from buying life insurance.