Life insurance for high net worth individuals
On the face of it, having access to significant cash reserves and assets is a healthy situation for anyone to be in. But life is full of surprises, so do high net worth individuals need life insurance? In this article we look at some of the reasons why life insurance could provide an important form of financial protection for those with a large estate.
A high net worth individual can be someone with a high income or someone with significant net assets.
Taking out life insurance as a high net worth individual follows the same basic principles as with other types of applicant. If you die during your policy term, your loved ones could make a claim and trigger a life insurance payout, which could be used to give your family some financial reassurance at a difficult time. The cost (also known as your premium) will be calculated based on things such as your health and lifestyle as well as how much cover you want, as we’ll explore later.
No one likes to imagine a time where they’re no longer around. But if you take out life insurance as a high net worth individual, for example you have a high income, your nearest and dearest could use any payout to cover a number of costs, such as:
- The mortgage or rent
- Educational costs
- Household bills
- Outstanding debts
Life insurance could also help if you have significant net assets. Some protection products can be used in inheritance tax planning - for example. Or if your money is tied up when you pass away, loved ones may experience cash flow issues.
Types of high net worth life insurance
If you’re thinking about how to protect yourself with a life insurance policy, what are your options? Below are some types of life insurance to check out.
This type of life insurance provides lifelong financial protection. As such, whole-of-life insurance policies are often more expensive and sometimes associated with high net worth individuals for inheritance tax planning. Legal & General offers whole-of-life insurance through an adviser.
With life insurance you’ll be covered for a certain length of time that you choose when taking out the policy. If you pass away while the policy is in place your loved ones could receive a cash sum.
Decreasing life insurance
Legal & General’s Decreasing Life Insurance – sometimes referred to as ‘mortgage life insurance’ – is designed to help protect a repayment mortgage if you were to pass away while covered by the policy. Unlike a 'level term' policy, the cover reduces roughly in line with the way a repayment mortgage decreases.
Critical illness cover
You can add critical illness cover to a life insurance or decreasing life insurance policy for an extra cost. This means that you and your loved ones could receive a cash sum if you’re diagnosed with a specified critical illness or undergo a medical procedure for the illness. It could help with child care costs, household bills or to help maintain your standard of living if you're forced to take time off work to recover.
It's important to remember that these products are not savings or investment plans and will only pay out if a valid claim is made.
How much does high net worth life insurance cover?
If you’re a high net worth individual, the chances are that your money, assets and possessions could amount to a significant sum. So it’s worth noting that Legal & General Life Insurance policy can cover you for up to £10 million, subject to underwriting.
Do I need life insurance as a high net worth individual?
Life insurance could provide useful financial protection if you’re a high net worth individual. First, think about the total value of your assets – including your property, cash in the bank and other assets like cars – as well as your liabilities, such as mortgage payments, loans and credit card debts. Would your loved ones be able to manage financially if you were uninsured when you pass away?
Additionally, every household has different levels of expenditure, and it’s worth thinking about your lifestyle before deciding if life insurance is worth it. For example, if you have children who participate in high-cost recreational activities like skiing or horse-riding, you may want to ensure there are financial provisions to keep funding these hobbies if you were not around.
Plus, some high net worth individuals get life insurance to cover educational costs such as childcare, tutoring or school fees, which may be harder to fund in your absence without financial cover.
What are the tax benefits of high net worth life insurance?
You may choose to write your life insurance 'in trust'. If you take this step, it means the value of the policy is unlikely to be considered part of your estate, and therefore your beneficiaries may not be liable to pay Inheritance Tax (currently 40% on the part of your estate above a £325,000 threshold).
In addition, if you’re a business director you could look into Relevant Life Insurance. These policies are owned by companies and the policy premiums can count as a tax deductible business expense. This type of policy is only available through an adviser.
How much does high net worth insurance cost?
The cost of your life insurance policy will depend on a range of factors, including your age, weight, overall health, smoker status, alcohol consumption and family medical history.
And of course, if you’re a high net worth individual, the amount you wish to spend on life insurance will be based on a number of other factors, such as how much you’d like to leave for your dependants, how much you would need to pay off any outstanding debts, and whether you have any existing life cover arrangements.
Try our life insurance calculator to get an idea of how much cover you may need or speak to an adviser if you need more help.