Is life insurance available for the $1.5 billion Powerball winner?

There may not be enough life insurance available to cover the sole winner of the massive $1.5 billion Powerball jackpot.

The next drawing is scheduled for Saturday night and will offer $745.9 million to one winner who chooses to pay in full. Richard M. Weber, a veteran of his 56 years in the life insurance industry, said those big jackpots quickly assembled teams of advisors, lawyers, and even psychologists to help them financially and mentally. It is necessary to support effective planning.

Part of that plan, he said, should at least include the option to purchase enough life insurance to cover estate tax bills if the winner dies unexpectedly. Meaning worthwhile policy. No insurance company can underwrite such a large policy. Whether even the insurance company’s team can handle it remains to be seen.

“I don’t know if the industry can issue $400 million, $500 million, $600 million life insurance today.Richard M. Weber, Principal, The Ethical Edge

“I don’t know if the industry can issue $400 million, $500 million, $600 million in life insurance today,” Weber said. “I don’t know today’s underwriting depends on that kind of buying.”

Weber is a principal of The Ethical Edge, which provides professional life insurance consulting services to companies and advisors on behalf of their clients. He once consulted on a $300 million life insurance deal.

“It took 17 different insurers to manage $300 million in premium payments, reinsurance and all the other work,” recalls Weber.

property tax bill

Inheritance tax is a concern for large incomes such as large lottery wins. For wealthy people who die in 2022, the exemption is his $12.06 million (in 2023 he will be $12.92 million). Together, as a couple, he’s $24.12 million in waivers.

This means that anyone with a fortune less than these figures is exempt from estate tax. In fact, only a small percentage of Americans die with assets of $12 million or more. But for those who do, most of the property’s value is taxed at her high rate of 40%.

Having a life insurance policy in place to fund estate tax bills is a good way to get “reasonable savings”. ”

Property tax exemptions were significantly increased in the 2017 tax bill. However, the current inheritance and gift tax exemptions are scheduled to be abolished at the end of 2025. The exemption amount will then be reduced to the previous law’s cap of $5 million, adjusted for inflation. In addition, the maximum tax rate for gift and estate taxes was 40% and will be increased to 45% in 2026.

“A lot of wealth can now be disposed of through gifts and inheritances before sunset,” said Weber. “So the question is, who will win the 2024 election? It probably has something to do with what happens at sunset.”

Annuities are at risk

Most lottery winners receive a lump sum, but many financial advisors recommend an annuity. The option pays him $1.5 billion in 29 annual installments and allows lottery winners to avoid staggering financial decisions upfront, advisers say.

But there is still a hidden tax bomb that life insurance plans help cover, Weber said. Lottery annuities are for a “fixed period,” so even if the winner dies, someone will still receive the money. If so, the IRS will be collecting taxes on the entire $1.5 billion.

In tax parlance, it is known as “income relating to the decedent,” or income not yet earned by the deceased.

Life insurance has many uses, many of which, along with charitable giving, inheritance and other strategies, help lottery winners avoid many taxes, Weber said. But in reality, the winner may not be interested.

“It’s funny, but I’m going to have a lot of fun, some might say. I’m going to buy one of those megayachts, and if I do it right, I’ll do it all.” Use it and then die,” said Weber. So you don’t have to worry about property taxes. “

Senior editor at InsuranceNewsNet, John Hilton has covered business and other topics in daily journalism for over 20 years.May reach John [email protected]Follow him on Twitter @INNJohnH.

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