Sometimes, there are limits to even what a billionaire can buy.

For example, let’s look at life insurance, often the most efficient tool ultra-wealthy individuals can use to offset estate tax, oftentimes providing the liquidity needed to avoid a fire sale of family assets, including business interests, real estate and artwork. Advisors typically structure policies to offset as much of the estate tax burden as legally possible.

Life insurance is fundamentally cost effective and billionaires usually want as much as possible. But not all ultra-wealthy individuals can get as much as they want—billionaires whose wealth is highly liquid, for example. Nevertheless, individuals at the pinnacle of the financial hierarchy usually have access to about $400 million in life insurance. This requires advisors to be strategic in the acquisition process.

If $400 million sounds like plenty, it may be time to take a look at the tax environment. The estate tax obligation for someone with $1 billion in assets residing (and dying) in New York state could approach or exceed $550 million. Life insurance policies will fall woefully short of offsetting that burden. Given these circumstances, the right question for billionaire clients is not, “How much coverage do I need?” but “How much of what I need can I get?”

Securing coverage on family and business associates is one way to extend benefits. By insuring multiple members of the immediate family, billionaires can double family coverage. The second generation is usually insured through private placement insurance strategies. Billionaires also often have the option of insuring business partners through key person policies. A business with revenues of $100 million, for example, might be able to procure a $50 million policy on a single partner.

As usual, pop culture portrayals of the process are a little misleading. Lifestyle concerns—hazardous hobbies such as extreme sports or space travel, pre-existing medical conditions and other risk factors—may influence the pricing of policies, but they generally have little impact on the optimal level of coverage needed. Any degree of sticker shock experienced by the cost-conscious client is usually offset by the larger tax benefits generated by obtaining the maximum allowable coverage. In fact, the appeal of the discounted-dollars approach extends beyond traditional estate planning.

Life insurance products are increasingly critical components of overarching tax mitigation and wealth accumulation strategies. Even as these strategies produce exciting new opportunities for the tax-efficient creation and transfer of exceptional wealth, they compound the challenges associated with coverage limits per individual insured. In many cases, there simply is not enough life insurance capacity among the insurance companies and reinsurance companies to meet all the advanced planning goals of the billionaire client.

Again, it is the tax environment for ultra-high-net-worth families that is helping to drive demand for coverage in excess of policy limits. The American Taxpayer Relief Act took effect in January 2013. Among its provisions, the legislation increased the federal income tax obligations of the wealthiest taxpayers to a rate of 39.6%, an increase of nearly four percentage points. Most state governments, seeking increased revenue, have also enacted substantial increases to upper-bracket tax rates. In New York, California and other states with high concentrations of U.S. billionaires, the effective income tax rate could exceed 50%. Meanwhile, other legislative efforts aimed at repatriating investment income have made offshore strategies less appealing while imposing stiffer penalties for non-compliance.

Given all the moving parts, intricacies and providers involved, life insurance should be regarded by advisors as one piece of a larger, long-term wealth preservation strategy. The underwriting process is ideally conducted in consideration of gifting and estate mitigation strategies, charitable trusts, business interests and lifestyle concerns to maximize benefits. By understanding the billionaire client’s often multi-level goals and motivations, advisors can better determine exactly what vehicles will deliver optimal results. Emphasis can be placed on either greater insurance protection or tax-favored cash accumulation plans, such as  private placement life insurance. This type of policy’s cash value appreciations are based on a segregated investment account, combined with the traditional life insurance benefit.

Life insurance has historically been a part of many successful multigenerational wealth transfer strategies. Leveraging wealth accumulation aspects, these components can become exponentially more powerful. Certain vehicles allow for directed assets to be held in trust for generations, all the time enjoying tax-deferred growth. The structures, such as private placement policies, often incorporate investment accounts such as hedge funds that are traditionally tax inefficient.

The lives of billionaires are exceedingly complex; they have a broad range of interrelated and distinct business and personal interests. Events such as marriage or divorce, liquidity events or the birth of a child can all immediately and dramatically alter long-term goals. Making life insurance reviews a part of the estate planning process enables advisors to keep pace and put necessary protections in place. This also allows them to evaluate and keep billionaire clients apprised of new products and services that enhance coverage and tax mitigation.

Frank W. Seneco is an advanced planning life insurance specialist. He is the president of Seneco & Associates Inc., a boutique advanced planning firm in Connecticut. He can be reached at

Alan S. Kufeld, CPA, MST, is a partner at Flynn Family Office. He specializes in wealth preservation and income and estate tax planning strategies for ultra-high-net-worth individuals and families. He can be reached at

Evan Jehle, a partner at Flynn Family Office, provides accounting, tax and business consulting services to ultra-wealthy clients, including celebrities, athletes, asset managers and executives. He can be reached at