Top 5 Reasons Wealthy People Want Life Insurance
Wealthy People Want Life Insurance. Do They Need It?
Wealthy people, or High Net Worth (HNW) consumers purchase permanent life insurance every day for many reasons. Most people use life insurance for income protection and that is certainly the case for the majority of life insurance purchases. Some, typically younger HNW people are high income earners with high net worth’s. We see them buying life insurance to protect income too. However, many HNW people over age 50 do not have a classic “need” to protect income as they have other assets for their families when they die. Without life insurance in place, these families would not economically suffer. Therefore, the “need” for insurance does not apply like it does for many families when a breadwinner dies prematurely.
Yet, HNW people buy life insurance for many reasons even though we often hear that “wealthy people have no reason to own life insurance”. The HNW market may not have the classic needs applicable in other markets but wealthy people want life insurance to solve many other problems. Essentially, they are buying a GUARANTEED infusion of liquidity at death. Each person will have a different reason for wanting this cash infusion. Here are a few:
- For some who are presently wealthy, they worry about the future when they could be less fortunate at the worst possible time.
- Others want this liquidity because the value of their assets varies quite a bit. One of my real estate clients in Miami has a net worth that can change by $10M every few years based on market conditions. If death occurs at the lowest point of these valuations, the family could be financially impacted and some assets might be sold at the wrong time. The liquidity provided by the life insurance mitigates this threat.
- Many wealthy people have active businesses with one or more children working in the business. When some of the children are not working in the business, life insurance equalizes the inheritances for each child.
- More and more wealthy clients are leaving life insurance directly to each of their grandchildren. The insurance policy is simple, inexpensive and it’s a feel good purchase knowing what this will mean to each grandchild. Some disclose the purchase, others do not.
- Wealthy people have the ability to finance the life insurance premiums. When this makes sense, it can be a very effective way to create wealth and liquidity free of income, gift and estate tax.
Finally, the reasons above are from the perspective of the buyer. From my perspective as an advisor, there is one important reason that is under-appreciated. Oftentimes, there are elaborate plans in place to minimize taxes, protect the assets, transfer the wealth effectively, etc. In the cases where the assets are comprised of homes, businesses and real estate investments, there is nothing like the infusion of liquidity provided by life insurance. It gives the advisors and the family time to execute the plan without fear, worry or stress. Too many times, without sufficient liquidity, anxiety creeps in and family members get nervous which can lead to litigation, confusion and disruption.
If you wish for your heirs to remain close after your death, add life insurance to your plan. Too many advisors are making recommendations only from the perspective of need. My experience suggests there is great value and appreciation for this liquidity once the life insurance is viewed as an enhancement to their existing plans. It may be a cliche, but I have never heard a disgruntled beneficiary or trustee complain upon receipt of life insurance proceeds.
Please contact me at 561–869–4500 or email me at TB@LifeCyclePlanners.com about a complementary consultation including a review of your inforce coverage.
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Originally published at Life Cycle Financial Planners, LLC.