Paying half a million dollars a year in life insurance premiums would sound extreme to most families. But for one woman with a $60 million estate, that is exactly what her financial advisers are recommending, even though she already holds multiple large policies.
The issue surfaced during a recent call to “The Ramsey Show,” where her daughter, Sarah, explained that her mom is being encouraged to add another $300,000-a-year life insurance policy on top of the coverage she already has. Altogether, the premiums would total about $500,000 annually.
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When Estate Planning Gets Complicated
Sarah explained that her mom currently has a $1.5 million whole life policy costing $100,000 a year, plus two $10 million policies at $100,000 each per year. Now advisers want to layer on another large policy.
“Goodness gracious,” co-host George Kamel said when he heard what Sarah said. “It feels like now they’re just grabbing commissions left and right.”
Sarah’s concern isn’t about whether her mom can afford it. With a $60 million net worth, she clearly can. The question is whether this is a smart estate strategy or expensive overkill.
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On $60 million, the tax bill could be enormous. In that context, paying significant premiums to protect a much larger sum might make financial sense.
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Commission Or Smart Tax Shield?
Sarah pushed back specifically on the whole life policy. Her mom’s advisers told her that in seven years, “it pays for itself.” The idea is that paid-up additions and internal growth eventually cover the premiums.
“Yikes,” Kamel said. “Well, that plan can implode pretty quickly with how high these premiums are and how awful the returns are.”
He added that some policies, especially when owned inside an irrevocable life insurance trust, can keep the death benefit outside the taxable estate. “That’s probably what they’re trying to do,” Kamel said, referring to shielding millions from estate taxes.
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But he also acknowledged that large estates attract large commissions. “There are some people out there who can take advantage of people like this who have giant estates,” he said. “I want to know: are these bad apples?”
The advice Sarah got was not to assume bad intent, but also not to blindly accept the plan either. Get a truly independent third-party adviser to review everything and bring that analysis back to the existing team.
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Sarah admitted the complexity is outside her expertise. “It definitely is well outside of my knowledge base,” she said. “I just want to look out for my mom.”
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