Life insurance is a financial product that guarantees infusion of liquidity at death. People believe that wealthy people have no reason to own life insurance, basically because they have many assets for their families when they die. Without life insurance, their families would not economically suffer if a breadwinner dies prematurely.
However, wealthy people will purchase high net worth life insurance to solve other problems. The most important being for income protection, covering taxes, guaranteed growth of money, donating to charity, and estate equalization, to name a few.
A properly designed whole life insurance policy can be highly beneficial for high net worth people. So let us elaborate on some of the reasons wealthy people take out life insurance:
- Sure protection of your money: Unlike other investment options that are vulnerable to market losses, such as mutual funds, stocks, bonds, and precious metals, life insurance guarantees complete protection of your invested cash value. Also, it ensures the privacy of the monies in the policy and protects funds from unjust lawsuits.
- Promise growth of money every year: The funds you invest in a life insurance policy attract compound interest tax-free. The rich have realized this andare getting wealthier, therefore more and more affluent people are purchasing life insurance.
- Earn tax-free dividends: Cash payout to your family from life insurance is not taxable; the death benefit paid out by the insurer is free of tax. A life insurance policy can grow more quickly because of tax-efficient growth. No tax will be paid on any premium financing that is secured against your policy.
- You can access your cash anytime: At any time and for whatever reason, if you need to borrow or access your money before retirement from a whole life policy, you will not have to face any obstacles.
- Asset protection and obtaining loans: Illiquid assets like a business, real estate will be liable to taxes upon death. To cover these taxes, life insurance can be an ideal option. High net worth people can get loans from premium financing companies, banks, or even their insurance company against their universal life insurance policy. If you have an outstanding loan balance when you die, the amount will be deducted from the death benefit.
- Cover for long-term care and chronic illnesses: ‘Health Is Wealth,’ wealth creation without health cannot be enjoyed. You can get access to some of your invested money for your long-term care and medical expenses through a whole life insurance policy.
- Corporate benefits: Wealthy people are leveraging on combining their businesses such as real estate, auto financing, private lending with a life insurance policy to avoid taxes.
- Inheritance equalization: High net worth people who want to give their heirs equally, life insurance is a viable way to provide financial fairness. Many wealthy clients now prefer leaving life insurance directly to their grandchildren, a simple and inexpensive way to secure their future.
- To donate to charity: Many philanthropically driven wealthy people invest in life insurance to donate to charity in their lifetime or name an organization/institution as the beneficiary.
In addition to all the above benefits that you can avail during your lifetime, this product is still a life insurance policy. On your death, your beneficiaries will receive payouts tax-free, ensuring the inter-generational transfer of wealth.