Life insurance is absolutely vital for individuals with high net worth. Not only is it a great way to protect your beneficiaries in the future, but life insurance also offers a swiss army knife of alternative uses. Whether you’re interested in using it for tax advantages, an additional investment vehicle or simply leverage your cash a well put policy can achieve your goal.
You can also use life insurance to protect your commercial interests such as key employees, fund buy-sell agreements or even use life insurance as collateral for a business loan.
If you haven’t had the time to get a life insurance policy until now, you should consider it soon. The longer you wait, the higher your premiums will be, since age is a key factor in how life insurance carriers price their premiums.
Why would Affluent Individuals Need Life Insurance?
It is quite common for people with a high net worth to wonder if they really need life insurance since they have lots of assets and investments. Although it may seem that there will be enough to cover all expenditures and take care of the heirs with current assets. But contrary to that, it is actually the affluent who are most interested in having life insurance. So let’s analyze a few reasons why that might be.
1.Leverage Cash
If you have $5 million and I told you that you can turn it into $10 or $15 million for your heirs guaranteed, would you do it? Of course, you would! Well, I’m here to tell you that is one of the reasons why the high net worth clients love life insurance.
It is quite common for the client to purchase a single premium paid-up permanent life insurance plan simply because they just doubled, tripled and in some cases quadrupled the amount of money they would leave to their heirs.
For example, I recently had a client who is a 49-Year-Old Female and she wanted to leave more than the $200,000 she had in the bank to her children if she was to pass. So we got her a single premium universal life with a $200,000 one time payment that resulted in securing a plan for $1,000,000.
Not only did she just turned $200k into a million like magic, but she’ll also not have to worry about life insurance. But wait, there’s more(not to sound like an infomercial) she will also start getting compound interest on her cash value within the policy immediately versus waiting for 5 years of paying down fees with permanent policies that you pay monthly. Simply put, there is no better way to leverage your money for your beneficiaries than this.
2.Estate Planning
Unlike the rest of the population people with a high net worth spend a good amount of their time managing their money, taxes and asset allocation. In 2020, if your total estate is more than $11.58 million you’ll have to pay a hefty tax of 40% for anything over that amount.
If you die your heirs will have to pay any taxes before getting the transfer of assets. So you can imagine that this can be an issue if your net worth is $20 million and up. In the event that your heirs can’t come up with the funds, the government will start to liquidate assets at an auction. As we all know, bureaucrats are not the best at appraising antiques, art or for that matter your mansion.
The solution is simple, get a permanent life insurance policy assigned to trust so the lump sum payout of life insurance won’t become part of the estate and your trustees can use the death benefit to pay the IRS. Using a life insurance policy for estate planning is a must and can be a huge difference for your loved ones. Life insurance proceeds can be paid out within a week’s time after a claim without being part of your estate. By putting a large amount of liquidity in your family’s hand can avoid the nightmare of estate transfer.
Speaking of liquidity, even if your estate is not in the threshold to be hit with the high tax rate. You should still secure a policy to create immediate liquidity for your family. We all know that any legal process can take months if not years depending on the situation. Life insurance can be a great bridge to fund your family while the asset transfer takes place.
Getting the right type of life insurance policy is important and is only one step of the process. You also want to make sure you have a legal professional that is able to set up everything correctly and is experienced with estate planning. The last thing you want is to set up the process incorrectly and have the life insurance policy become part of the estate.
3.Business Reasons
Another popularity of life insurance amongst the high net worth individuals is using it for business purposes. Life insurance is one of the most valuable insurance products when it comes to business. One such way is to fund a buy-sell agreement which is a contract stating that if one of the business partners dies the remaining partner or partners buy out the equity from the deceased partner’s family. The perfect way to fund this happens to be with life insurance in which each partner will buy and pay life insurance for the other partners. This is the most efficient way to take care of the partner’s heirs and buy them out so the business operation can continue running smoothly. Without this, it is common for businesses to get inexperienced family members coming on board or dragged out judicial battles.
In the event where a large business loan is required or there is a large amount of investment capital. The wealthy business owner may be obligated to secure life insurance to protect lenders and investors by putting up collateral. Putting up your personal assets is an option but not the best one. The last thing you want is the lenders coming after your family’s assets if you died prematurely. This can be easily avoided by purchasing a life insurance policy and assigning it as a collateral. Other times the business owner is starting his third or fourth business and wants to make sure that during the building stages if something happens to him, his family will be well off since he may be liquidating assets to invest in the new venture. So getting a business policy to protect his income is also an option.
Another common reason to acquire a policy is to insure the lives of key employees in your company. It is important to make sure your business receives funding if one of your valuable employees pass unexpectedly. This is obviously an individual who’s loss would quite literally affect your company’s bottom line.
Although this reason doesn’t apply to the high net worth client getting a policy on themselves but it is still a great reason for life insurance. This reason is securing a policy on key employees within the company since their death can directly affect the bottom line of the business. Having a policy in place will help you use the money to stay afloat while headhunting for talent.
4.Legacy
If you are a high net worth individual, you might be thinking about transferring assets through generation-skipping. This is very popular with grandparents who want to leave some form of provisions for their grandchildren. Worried that a lump sum might not be the best way for your grandchildren to receive some of the assets you have worked so hard for?
Today’s life insurance policies are very innovative and there are multiple carriers that allow you to establish legacy gifts where the beneficiary receives payments every month or even every year. Your quote will even show how you can structure payments this way to allow your beneficiaries to receive more than a lump sum payment amount due to interest.
For many individuals, structuring a life insurance payment this way is appealing when you have grandchildren who you want to receive assets. This can help leave your legacy and even an ongoing birthday gift if you are interested.
5.Charitable Giving
One thing about the high net worth clients is that they usually love to give back to their communities, the latest research institutes, non-profit foundations, museums, and other organizations.
Most of them also want to maximize their contribution without taking away from what they would leave for their family. That is why they would secure a life insurance policy and name the entity they would like to make a donation to as the primary beneficiary of their policy. Not only will this not put a burden on your assets but it also gives you an ability to maximize your contribution. When you have a strong passion for a cause it makes a lot more sense to turn $10 million into $30 million for example. That’s 3 times the amount given to a good cause with the existing amount of capital.
6.Cash Value
If you have already maximized tax sheltering opportunities, you may want to consider a more advanced life insurance product that has cash value inside of it.
Universal life and whole life insurance policies have cash value and this can be a great way to build up savings inside of a product. The newest item on the market, indexed universal life insurance, gives you the opportunity to experience significant gains while holding on to a 0% floor, which appeals to many individuals who want an additional savings vehicle.
Using universal life insurance through an indexed product is also a great way to turn on an income stream at a certain age. You can even build this directly into your quote to see what policy loans or withdrawals might look like at later ages. Today’s products have a lot of moving parts, but this can actually be a good thing for the informed high net worth policyholder. You can speak with one of our specialists to learn more about how to structure your policies to maximize your benefits in order to limit your tax liability. The cash value inside of a life insurance policy that also has a high beneficiary payment is one way to structure protecting your family in the event that something happens to you.
Looking for something with guaranteed returns you can secure a whole life policy from a mutual insurance carrier. This allows you to get solid returns and also participate in dividend payouts from the company.
As you can see, there are an ample amount of reasons why people with high net worth need life insurance. This is why it is not uncommon for people with wealth to have more than one life insurance policy. Life insurance is one of the most important tools in anyone’s portfolio who has a significant amount of wealth and assets.
Best Life Insurance Companies for High Net Worth Individuals
The best life insurance company is usually the one that will give you the best deal based on your overall qualifications like health, lifestyle, family history, background and your use of nicotine. For example, someone who is a type one diabetic is not in a position to choose which company he wants to deal with since only a few companies will even consider that condition.
Now assuming you’re in good health there are certain companies that are ideal for people with higher net worth to work with.
Prudential
One of our favorite companies to work with due to the fact that they have a large variety of life insurance products to choose from and they welcome large face amount policies with open arms. The company is also “A+” rated by A.M. Best. It is one of the biggest life insurers in the world so you won’t have to worry whether or not they will be around to pay up in the event of your death. Prudential is also very good at giving people a chance if they have pre-existing conditions and they will even try to give you points for other favorable factors so you can get a better rate. Whether you have high-risk hobbies, adverse family history, past bankruptcies or medical conditions, this carrier will usually offer the best rates.
Even though you’d be calling us for all your questions or policy changes, it is still good to know Prudential has outstanding customer service. They also carry one of the best portfolios of life insurance products. So whether you need term, whole or universal life they have many variations of each.
John Hancock
Another industry giant with an “A+” rating and a history of surviving every economic downturn and both world wars. The company was started in 1862 and is one of the most reputable insurance carriers around. When my clients ask for reliability, customer service, and high-end products without minding paying a bit more, then John Hancock becomes the obvious choice. Just like Prudential, they are also known for their fair underwriting guidelines and placing policies with high face amounts.
They too have a very broad portfolio of different insurance products. What’s also interesting about them is that they are not competitive for lower face amounts but are one of the best priced for higher face amounts. So for anyone looking for $1 Million to $100,000,000 of life insurance they are definitely a contender.
These are the two companies are agency had a lot of luck with but there are many others. No one company is ideal for everyone, because there are so many factors that determine the best carrier to pick.
Best Product for High Net Worth Individuals
This is definitely a tricky one since there is a variety of life insurance products with each being designed for a special purpose but there is a way to break them down. If you have a short need for life insurance than a very affordable option is simply getting a level term policy with an option to secure it from 1 year all the way to 30-year term. A lot of our clients start out with term policies and later on either add permanent plans or convert their term policies.
If you’re someone who wants the tax deferral and cash value growth then there is no better policy than a Variable Universal Life. It gives you the tax advantages of life insurance and flexibility to invest in high return investments within the policy for maximum cash value growth.
But at the end of the day, the best bang for your buck is going to be a single premium universal or whole life policy because you’re saving a ton on the premium by paying at once, your cash value starts compounding right away, plus you can leverage your cash 4 to 6 times. You can also set up this policy to have an increasing death benefit which will provide your beneficiaries with the life insurance cash value portion. Having this set up will result in having a very large payout as time goes along. For example, if you have a $1 million dollar Policy at age 30 with an increasing death benefit, then it may become a $20 million dollar policy by age 85. The best part this will occur without having to put any additional money into it outside of the single premium payment.
This type of policy provides the best returns when you lock it in at a younger age and good health. Not that you shouldn’t get it if you’re over 65 but the younger the better returns.
In the bad market, we recommend a whole life plan with a guaranteed rate of return as the minimum with one of our mutual companies. This policy earns market returns in a healthy market but if it crashes you still get a guaranteed rate of return. You can have this set up with monthly, annual or single premium options. When it comes to life insurance products there are many to choose from when you work with an independent agency.
Process of getting life insurance
Getting life insurance as a high net worth individual is no different than anyone else except for a few additional details. You’ll first want to shop around for the most competitive rate based on your overall risk criteria. Once you find the best option you’ll simply complete an application by answering questions about your overall health, background, income, beneficiaries and personal details. When the application is signed and complete, next comes your medical examination. The medical exam is conducted by a paramedical examiner who can come out to your home or office. It takes about 30 minutes to complete and they collect your blood, urine along with gathering information about your vitals. With a signed application and exam complete, the company will assign an underwriter to look over all details to make a decision. The underwriter may request additional records or information if needed to decide on your application decision.
The big difference with higher net worth applications is that the underwriters will usually ask for some additional documents pertaining to your finances. A very common one is a certified letter from your bank or financial manager stating your net worth. If it is a commercial policy, various paperwork about the business may be requested as well. Once everything is gathered your policy will be approved and you simply need to make your premium. When the premium is processed you’re covered from that point on.
Best Agency for You
As you can see the life insurance process for higher net worth clients takes a lot more experience and some additional steps. This is why you want to work with an agency who has not only knowledgeable staff but also access to exclusive products. We are an independent agency that works with over 30 top-rated life insurers with extensive expertise in case design and underwriting. Trust us to create a custom-tailored solution for your needs while also ensuring that you get the best deal around. Here at InsureChance, we have helped 1000’s of high net worth clients secure a life insurance policy. And if that’s not enough we also provide lifetime support to all of our clients so call us today at 888-492-1967 or Get Instant Life Insurance Quotes Online. Welcome to the Family!
