High Net Worth (HNW) consumers choose permanent life insurance for many different reasons:
Income Replacement: It does not matter if your income is $100,000 per year or $1,000,000 per year, the income replacement need is the same. Nor does it matter if you are 35 or 55. If your family depends on your income, life insurance guarantees no disruption to your family’s lifestyle.
Immediate Liquidity: HNW people do own life insurance even though we often hear “wealthy people have no reason to own life insurance”. They want GUARANTEED liquidity at death and they purchase permanent insurance because only permanent life insurance is guaranteed for life. Some other reasons include:
- The value of their assets can fluctuate significantly. A real estate client of mine in Miami can see $10,000,000+ fluctuations every few years. The family could be financially impacted and some assets might be sold at the wrong time if death happens during one of these lows. The liquidity provided by life insurance completely mitigates this risk.
- Many people have active businesses with some children working in the business. Life insurance is the great equalizer for those children not in the business. Without liquidity in these cases, there is great risk to a smooth succession.
- Many clients own a life insurance policy for each of their grandchildren. The insurance policy is straightforward, inexpensive and a “feel good” asset knowing how it will impact each grandchild.
- Premium Financing. Wealthy people have the ability to finance life insurance. When it makes sense, it is a very effective tool to create tax free wealth.
From my perspective as an advisor, wealthy people want life insurance when they realize its value in supporting their well developed succession plans. In these cases, where assets are comprised of real estate investments, businesses and other non-liquid assets, there is nothing like immediate, tax free liquidity. It gives the family and their advisors time to properly execute the plan. Too many times, without sufficient liquidity, anxiety creeps in and family members get nervous. This can lead to litigation, confusion and disruption.
If you wish for your heirs to remain close after your death, add life insurance to your plans. My experience suggests there is great appreciation for this liquidity once it’s viewed this way. It may be a cliche, but I have never heard a beneficiary or trustee complain about receiving millions of dollars 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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Also published on Medium.