Written by
AJ Dellinger
Edited by
Natasha Cornelius, CLU
Natasha Cornelius, CLU, is an insurance editor for Bankrate, specializing in auto, home and life insurance.
Reviewed by
Mark Friedlander
Mark Friedlander is director of corporate communications at III, a nonprofit organization focused on providing consumers with a better understanding of insurance.
Updated Mar 18, 2024At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict editorial integrity ,this post may contain references to products from our partners. Here's an explanation for how we make money .This content is powered by HomeInsurance.com (NPN: 8781838). For more information, please see our Insurance Disclosure .
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On This Page Jump toHigh-net-worth individuals (HNWIs), people who own at least $1 million in liquid or investable assets, sometimes overlook the need for life insurance. It may seem that because they have significant wealth, they don't have to rely on insurance to provide a payout for their beneficiaries after they pass. However, even for those with significant savings, life insurance remains a crucial financial tool. Beyond offering some replacement for lost income, life insurance plays a pivotal role in estate planning for HNWIs. The tax-free death benefit provided by life insurance policies can be utilized to cover estate taxes, ensuring that beneficiaries receive their full inheritance. In times of market volatility, where the value of investments may fluctuate unpredictably, life insurance offers a stable financial safety net, safeguarding the long-term financial security of loved ones.
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See which provider is right for you.
Please select age Coverage amountThe amount of coverage you need depends on many factors, including your age, income, mortgage and other debts and anticipated funeral expenses.
Please select Coverage amount Policy typeWhole life insurance combines life insurance with an investment component.
Term life insurance is precisely what the name implies: an insurance policy that is good for a specific term of time.
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Why Lemonade? It's a fresh twist on life insurance: easy, accessible and affordable. See more providers in Choose from insurers inHigh-net-worth individuals benefit from having life insurance despite their substantial assets. Life insurance plays a crucial role in estate planning by providing a tax-free death benefit that can cover estate taxes. It also serves as a financial safety net, offering stability and protecting the long-term financial security of loved ones. Ultimately, life insurance provides peace of mind and safeguards the legacy and financial well-being of high-net-worth individuals and their families against some of the many risks that they need to consider, including the following:
Economic downturns: High-net-worth individuals may experience significant financial strain from economic and financial market downturns. If you have dependents as an HNWI, purchasing life insurance may give you peace of mind that your family or dependents may be financially protected from a volatile economic environment.
Estate taxes: Another reason high-net-worth individuals might consider life insurance may be to help pay for estate taxes. Estate taxes are taxes on a person’s assets after death if their assets exceed a certain threshold. The estate tax rate can reach up to 40 percent on the federal level for assets over $12.92 million, while state tax percentages and exemptions vary.
Business protection: If you are a business owner or co-owner, life insurance may also protect your assets through a buy-sell agreement. A buyout agreement is a contract often funded by life insurance that can help minimize the financial impact caused by the death of a business owner or partner.
Additionally, a cross-purchase agreement (which is a type of buy-sell agreement) is a formalized agreement in which the business owner’s heirs will sell the deceased’s stake in the company back to the business. The proceeds go to the beneficiaries, who will receive their share of the company value. This also protects the company from new owners coming in and disrupting the business.
Life insurance is a multifaceted tool for comprehensive financial planning. It can be useful in many situations such as providing tax-free funds to loved ones or business continuation.
It can be used as a form of business protection by securing key person insurance, which provides vital coverage in the event of the death of a crucial employee or executive. This policy ensures financial stability for the company by providing funds to cover lost revenue, recruitment costs or debt repayment. Additionally, implementing buy-sell agreements in life insurance can facilitate the transfer of business ownership upon the death of a partner, preventing disputes and ensuring business continuity. Succession planning is enhanced through life insurance, as it provides liquidity to facilitate the distribution of business assets among beneficiaries or to fund estate taxes, which can prevent a forced sale of the business.
Life insurance can also be used to mitigate estate taxes and equalize inheritance among beneficiaries. The death benefit from life insurance policies can be used to cover estate taxes, preserving the value of the estate for the next of kin. Life insurance policies can also equalize inheritance among beneficiaries by providing additional funds to beneficiaries who may receive less from other assets in the estate. Utilizing irrevocable life insurance trusts (ILITs) allows high-net-worth individuals to remove life insurance proceeds from their taxable estate, maximizing the wealth transfer to beneficiaries.
Permanent life insurance can be a useful tool for supplementing retirement income. By accumulating cash value over time, permanent life insurance policies provide a source of tax-deferred growth that can be accessed through policy loans or withdrawals during retirement years. This supplemental income can complement other retirement savings vehicles, providing financial security and peace of mind during retirement.
High-net-worth individuals can leverage life insurance for charitable giving while receiving tax benefits. By naming a charitable organization as the beneficiary of a life insurance policy, individuals can make a donation upon their death while potentially reducing their taxable income. Premiums paid for life insurance policies designated for charitable purposes may also be tax-deductible.
Life insurance may be beneficial to high-net-worth individuals for a few key reasons, depending on their circumstances and financial plans for the future. However, there are a few types of life insurance policies that HNWIs may consider, depending on their needs and financial goals.
Term life insurance offers coverage for a designated period, typically ranging from 10 to 30 years. In the event that you pass away during the term, your beneficiaries receive the death benefit, subject to policy conditions. If you outlive the term, the policy expires, and no death benefit is paid out unless you renew the term, if it’s an option. Additionally, some term policies offer the option to convert to whole life insurance at the term's end, providing continued coverage as long as you convert by the deadline set by your insurance provider.
High net-worth individuals may want to consider term life insurance if they:
Permanent life insurance provides coverage for your entire lifetime as long as you pay the premiums. Whole life insurance and universal life insurance are the most common types of permanent life insurance, each with its own pros and cons. While generally much pricier than term insurance, permanent policies offer unique advantages, like a cash value component, that you can’t get with term life insurance. High-net-worth individuals with ample savings may opt for permanent insurance, viewing its cash value feature as a potential avenue for low-risk investment and low-interest borrowing.
HNWIs may want to consider permanent life insurance if they:
If you're a high-net-worth individual, finding the right life insurance company hinges on your policy needs and personal preferences. Begin by obtaining and comparing life insurance quotes tailored to your desired policy type—a useful starting point. You can utilize a life insurance calculator to gauge the appropriate coverage amount. However, note that given the larger policy sizes involved, the financial and medical underwriting process may be more extensive. Here are additional steps you may encounter during the application process:
In the event of your passing, beneficiaries must claim the death benefit by providing a death certificate. Depending on the payout method chosen—whether lump sum, annuity, or periodic payments—beneficiaries may receive the funds after a brief waiting period.
When comparing term vs. whole life insurance, there are a few considerations you may want to keep in mind. First, do you want coverage for a specific period of time, such as when your children are young? If so, term life insurance may be right for you. On average, term life insurance premiums are much cheaper than permanent life insurance premiums. However, the extra cost of permanent life insurance may be worth it if you’re interested in the cash value account that comes with permanent policies and want a policy that will not expire as long as you pay your premiums.
Your income won’t influence how much your life insurance costs, but it is reviewed during the application process. The insurance company wants to make sure you can afford the premiums. Additionally, your average annual income will likely dictate how much life insurance coverage you need, as well as the type of policy that makes the most sense for you. Generally, the higher your income, the more coverage you may want to purchase. The more coverage you purchase, the higher your life insurance premium. A well-tailored life insurance policy may ensure your beneficiaries are financially taken care of after you pass, so it may be wise to speak with a life insurance professional as you request quotes.
The best life insurance company depends on your individual needs. To find the right company for you, you could make a list of providers that offer the policy types you want. After that, you can think about what you need in a life insurance company. Do you want local agents that are available to help you? Do you care about online policy management tools? You may also want to check third-party customer satisfaction and financial strength ratings to make sure you’re choosing from the best life insurance companies on the market and that the carrier will have no problems paying claims. Talking with a financial advisor or licensed life insurance agent may help you make this choice.
