Recently an American company sold a $200 million dollar life insurance policy. While that’s fairly big news in the life insurance industry, there’s a bunch of things I find curious about the case that other’s haven’t mentioned.
- This is a permanent life insurance policy – typically a whole life insurance policy, but often also a universal life policy. The purpose is to pay estate tax on the billionaire’s estate after they pass. While these policies can be misused, this sale shows that there are uses for these policies. Some folks argue that nobody should purchase these policies – they are wrong. Others may argue that someone who’s a billionnaire doesn’t need the coverage – also wrong. The insured has likely realized that his estate is going to owe huge money in taxes at his death and noted two things. First, it’s quite possibly cheaper to purchase insurance than save the premiums to get the death benefit (really!) and secondly, he may decide that he doesn’t want his estate dismantled and sold off to pay taxes. For those that have built large estates, some of them want the entire estate handed down and not have to dismantle their business and sell components just to pay taxes. Hey, it’s not for everybody, or even most of us – but there’s plenty of folks with similiar issues and concerns. Something as simple as wanting to keep a cottage or small business in the family can necessitate a similiar situation.
- It was sold via direct mail. Yup, someone sent out junk mail flogging life insurance. I figure they must’ve sent it out to 90210 type zip codes to get clients like this (billionaires get junk mail? I didn’t know that!). What I find curious is that direct mail (yeah, yeah, yeah, junk mail) hasn’t been used to sell insurance in Canada in forever. It used to though – decades ago this was common practice. It’s not that it stopped working as a method to generate clients. It’s just that the industry has moved on to more glamourous marketing methods like TV and the internet. I personally like direct mail as a marketing method. It’s testable (you can try different things), it can be inexpensive, and it’s repeatable. Once you have the formula, you can keep doing it. Note: ask your parents about getting solicited by mail after they put in your birth announcement in the paper :). Birth announcements used to say “No Agents Please” because they’d get overwhelmed with mail).
- They split the policy amongst almost 20 life insurance companies. There’s actually other ways to do this in the insurance industry (using something called reinsurers) that may have actually made more sense. However I expect the client simply decided that they wanted to make sure that one company didn’t go bankrupt paying one claim. This is a common concern with larger policies.
Not surprisingly the billionaire was in California. I’m guessing they’re an internet kingpin. Speculation is that it’s someone like the head of Google,but no one really knows for sure. Apparently the insured doesn’t even want their beneficiaries to know about the policy – fair enough. Nothing says ‘do not rescuscitate Dad’ like a $200 million dollar life insurance policy :).