Life Insurance for High Net Worth Individuals
Life insurance has become critical for high net worth individuals to maintain the value of their portfolios even after death. By developing a definite plan that protects beneficiaries, high net worth individuals can ensure that their families continue to prosper even in their absence. Further, business owners can insure their businesses to help make sure that they continue to operate and maintain their value in the event of passing away. But individuals considering life insurance need to take action as soon as possible to lock-in low premiums. With each passing day, insurance premiums get higher and higher as individuals continue to get older.
Unconventional Life Insurance
Typically, when someone gets life insurance it is due to fears that their families may struggle in the event of passing away. For high net worth individuals, many alleged experts try to claim that they don’t need life insurance since they already hold enough assets, such as other insurance coverage options, on the books to live well. While many high net worth individuals may already have substantial assets, many of them continue to supplement their incomes by working as a consultant or taking a position in a leading company. Important to note is the fact that many high net worth individuals often hold their wealth in a variety of assets which may not be easily liquidated in the event of a death. For example, an individual may have a large portfolio of land holdings which could take many years to sell – meanwhile the family has immediate cash needs that they need to take care of.
Another example of an illiquid asset that is common to many high net worth individuals is the equity they own in their personal business. These business many times are entirely dependent on the owner’s direct involvement, and can easily fall apart without their personal oversight. For example, an attorney might operate a law firm, but without his personal presence the law firm may simple cease to exist. In this case it is not just the liquidity of the asset which is a concern, but the fact that the value of the asset can go potentially go down to zero. This could be devastating for the family future beneficiaries and lead to financial troubles further down the road. Therefore, maintaining life insurance to protect assets and supplement income is important for high net worth individuals. Banks are very aware of this, and is a reason why they require life insurance on almost all SBA loans when extending loans to small businesses.
In 2020, the federal estate tax starts at 18% and takes 40% of any values over $1,000,000 and 40% on any amounts exceeding $12.58 million dollars. Note that the first $11.58 million of estate is exempt from the federal estate tax. When combined with state, local, and county estate taxes, these costs can exceed 50% for many high net worth individuals. This severe confiscation can cripple even a strong asset portfolio that can be devastating to potential successors. Thankfully, something can be done to mitigate this liability. A longstanding rule has maintained that payouts from insurance policies are not subject to the estate tax. This means that by investing in a life insurance policy, high net worth individuals will be able to eliminate the burden of the estate tax for future beneficiaries. This is particularly valuable, because even though the estate tax at the moment is high, the rate at the current time is irrelevant, the only tax rate that matters is the one at your time of death. Given tax trends in the United States, this tax is very unlikely to drop, if anything it could probably go higher in future years.
Beyond just taxation, many high net worth individuals need to structure their estates in a way that will protect assets from misuse. Grandparents may be wanting to look out for their grandchildren without giving them unrestrained access to one lump sum. Today, insurance policies can be constructed in a way where payouts come in limited amounts while accruing interest in anticipation of a more mature age. These payments can even be annuitized to ensure that consistent payments continue to come in for the remainder of the recipient’s life. For high net worth individuals, virtually any payout policy imaginable can be constructed. From total payout at a certain age to even conditional payouts, individuals can work closely with their trusted insurance agents to develop a policy that fits them. This way, beneficiaries will be able to enjoy their patrimony for a lifetime with enough to pass on even to future generations.
In summary, there are four key reasons any high net worth individual should have a sizeable life insurance policy as part of their portfolio:
- Instant Liquidity
- Tax Benefits
- Value Preservation
- Structured Payouts
Developing a Custom Solution
Clearly, high net worth individuals differ substantially in terms of why they need life insurance and what they plan to get out of it. High net worth individuals should seek out help from a reputable insurance company with experience developing customized solutions for individuals with high assets. By making the effort to ensure that everything will continue on smoothly even after passing away, high net worth individuals can enjoy their wealth securely without needing to worry about potential consequences to heirs. High net worth individuals looking for a custom solution should fill out our quote form on the right-side of this page for a free no-obligation consultation to learn more.