Powerball Life Insurance Payout: $7.5 Million, Give Or Take A Few Million

By John Hilton

The lucky insurance agent(s) providing a policies to Wednesday’s Powerball winners could earn combined commissions as high as $7.5 million.

Powerball officials announced three winning tickets sold in Florida, California and Tennessee. The winners will split the record $1.5 billion jackpot. That means if you are a licensed agent in one of those states, you could get a chance to broker a policy to offset estate taxes on $500 million.

The insurance would be needed to cover potential estate taxes on the Powerball jackpot, should the winner(s) opt for a 30-year period certain annuity. That is because even though the payout would be annual, the estate tax on the total winnings would be due immediately.

The top federal estate tax bracket is 40 percent, although the state of residence may also levy an estate tax. The 40 percent federal tax is the whopper, and can bankrupt heirs should it come due unexpectedly.

That means a potential $200 million tax bill for a $500 million winner. In reality, the winners will likely be advised on shielding some money from taxes, or making tax-free charitable contributions, said Richard M. Weber, former president of the Society of Financial Service Professionals.

But for the purposes of our discussion, let’s assume those things are offset by state and other taxes, making the total tax bill in the $200 million neighborhood.

Weber calculated the premiums on a $200 million generic variable universal life policy for four hypothetical lottery winners. All are considered “preferred” customers, non-smokers in good health. The approximate premiums would be:

35-year-old woman: $1.2 million (agent commission: $600,000)
40-year-old man: $1.8 million agent commission: $900,000)
55-year-old woman: $3.1 million (agent commission: $1.55 million)
60-year-old man: $5 million (agent commission: $2.5 million)

Weber has experience with jumbo cases, having negotiated $300 million worth of coverage for one person. In that case, he helped structure different kinds of life insurance, which took a year to do and involved 17 insurance companies.

He used term insurance to cover the possibility of an early death and permanent to cover for a longer life expectancy.

Although it is not clear how an agent would structure the Powerball winner's estate tax strategy, it is readily apparent that it would be like winning the lottery.

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com.

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.