What Kind of Life Insurance Do High Net Worth Individuals Need?

David Cribb | Mar 26, 2022 | minute read

what-kind-of-life-insurance-do-high-net-worth-individuals-needLife Insurance offers financial stability and resources for individuals and families. There are many different kinds of life insurance solutions to address your individual needs and your life situation.

Basic Life Insurance Products

Common types of life insurance include:

  • Term life insurance
  • Universal life insurance
  • Whole life insurance
  • Guaranteed issue life insurance
  • Variable life insurance
  • Group life insurance

The Benefits of Life Insurance

There's much more to life insurance than just a death benefit. It may have a cash value or an inherent value, depending on the type of insurance.

  • Life insurance offers benefits that can protect your long-term financial wellbeing.
  • Unlike cash received from your inheritance or estate, the death benefit is given out as a tax-free lump amount.
  • Final expenses can be covered by life insurance.
  • Your dependents won’t have to worry about living expenses.
  • Life insurance can supplement your retirement savings.

Strategies for Using Life Insurance

High Net Worth Individuals

Most high-net-worth individuals have substantial estates and real estate holdings, but these assets are not liquid and frequently result in tax liabilities for your heirs. Life insurance is often used as an estate planning tool rather than to provide for the money.

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There are numerous life insurance strategies and possibilities from which to pick. The best product or solution for you might be determined by factors like your present income demands, tax position, and other assets you're utilizing to fund your financial goals.

Strategies for Using Life Insurance

Here are three examples of how life insurance might be integrated into a larger asset management strategy.

Estate Taxes

Historically, estate taxes have been a major motivator for high-net-worth individuals to purchase life insurance. Estate taxes can eat up a significant portion of your assets, leaving less for your successors.

Your family estate includes all of your assets, not only financial assets like certificates of deposit, stocks, and brokerage accounts, for estate tax purposes.

To Pay Off Business Loans

Many individuals with a high net worth or income often have significant commercial interests.

These commercial interests, however, are accompanied by business loans. Those debts could be easily paid off while you're still alive and running your firm. But your death may cause a drop in gross business profits, leaving less cash flow to service debts.

Your family may not have the resources to maintain the debt, thus jeopardizing the business.

To Pay Off Personal Debt

It's not uncommon for even high-net-worth individuals to underestimate their debt load. If your gross estate value is $3 million, but you owe $1.5 million in loans, your loved ones may be obliged to liquidate a large portion of your estate to pay off those obligations.

Even if you can comfortably pay off your existing bills, your family may not be able to do so without your income. Furthermore, your family's inability to service such debts may force your family to liquidate assets for less than fair market value.

Estate Income

Another reason wealthy people would seek life insurance is that it can be used for purposes other than providing a death benefit.

Life insurance can include a cash value component or provide coverage for the rest of one's life. Whole life insurance, for example, can pay dividends and is tax-free, so it can accumulate and give additional income.

In addition, regardless of your health, whole life insurance provides a death benefit to your dependents.

Business Agreements

Many high net worth individuals have business arrangements or buy-sell agreements that life insurance can fund.

A buy-sell agreement is a documented agreement in which the heirs of a dead business owner sell the firm's equity back to the corporation. The money could be distributed to the heirs, who will receive a portion of the company's value. This also protects the firm from new owners who may disrupt operations.

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Leap | Carpenter | Kemps Insurance Agency Can Help

At Leap | Carpenter | Kemps Insurance Agency, our life insurance agents can help you through the process of determining the coverage you need and want, and shopping a variety of insurance providers to find the best policy to meet your needs.

We know that navigating the course to purchase life insurance can be challenging, but we’re here for you and can answer any questions you may have. Contact one of our knowledgeable agents today.

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About The Author

Dave Cribb, the Chief Operations Officer of LCK, has an extensive background in management and sales in the financial sector.

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