Who Doesn't Need Life Insurance?

who doesn't need life insurance

How much life insurance does a guy need if he's young, single, has no children or other heirs and is a multimillionaire?

None, financial advisors would say. After all, life insurance is intended to protect survivors — but this guy doesn't have any.

Yet he bought $100 million worth of policies anyway — and is now suing the advisors who sold them to him.

Kevyn Ogawa was 32 and working at a Whole Foods store when he won $168 million in the Mega Millions lottery jackpot in 2009. He opted for the lump-sum payout and netted $70 million after taxes.

Attorneys and insurance agents Clinton Hodges and Kyle Dunphy, according to the lawsuit, "undertook to gain his trust. By touting their own experience and the success of their firm, they did gain the trust of Kevyn, who believed the two men were acting in his best interest." Ogawa claims he was steered into a series of bad purchases, starting with $100 million in life insurance that earned the sellers big commissions while taking advantage of the fact that he "knew nothing about life insurance." They persuaded him to buy four policies from four companies, telling him these would earn him "$50 million by the time he was 50 years old," he says in the complaint.

"Kevyn, a young unmarried man with no children, no siblings and only one living parent, had no need for so much life insurance. Kevyn stood no chance to benefit from the insurance financially since he was not named as a beneficiary of the trust that owned the policies," the complaint adds.

"The duo additionally encouraged Kevyn to open a line of credit and borrow the money necessary to purchase several pieces of real estate, including a $10 million beachfront property in Malibu. This strategy saddled Kevyn with $27 million in debt, while earning Hodges and Dunphy further commissions," the complaint says.

Two years later, Ogawa says, the men tried to persuade him to surrender his existing life insurance policies and take out a single $600 million policy. That's when he says he became suspicious and met with another advisor who told him that Hodges and Dunphy were pushing the idea to earn another large commission. He says he also learned his existing policies were "highly unsuitable for him and funded in a way that would provide him no potential benefit and would leave the trust liable for large amounts of gift tax."

The complaint says Ogawa finally surrendered his policies after paying nearly $2 million in premiums. He is seeking damages for breach of fiduciary duty and professional negligence.

This case is replete with financial lessons you've often heard from me, including:

  • Never buy life insurance as an investment.
  • Many forms of life insurance provide large, undisclosed commissions to the agents who sell the policies. Beware this conflict of interest.
  • Make sure there's a need for the insurance in the first place.

Originally published in Inside Personal Finance December 2013

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