Yes, they do. A major myth is that just because a person has a high net worth, they don’t need life insurance. Even with the millions, if not billions, in assets in your name, you will still need life insurance to protect your wealth and your loved ones. A lot of wealthy people don’t understand the importance of life insurance and some who do end up dismissing it, which is why some end up losing everything in their name after working so hard for it. That said, the following are the reasons why life insurance is important even for high net worth individuals.
Life insurance is used for estate planning by high net worth individuals. A lot of wealthy people struggle with balancing their wealth among their loved ones. For instance, if you run a successful business, and have two children you want to leave your legacy to, you can take out life insurance to ensure that none of them is left out. This way, you can leave the business to one then have the other one as a beneficiary for your life insurance policy. This helps avoid situations where the loved ones are left fighting for assets that were not allocated to them in a will.
Having a lot of wealth and assets also has its downsides. And estate taxes are the biggest problems for most wealthy people. When you die, your illiquid assets like capital property, real estate, farm, and even small businesses face high taxes upon your death. Even worse, if you have loved ones who depend on you to sustain their lifestyle, they might end up being left with nothing due to estate taxes when you die.
The best way to protect your assets is through life insurance. But before buying a life insurance policy, you need to assess your assets to determine how much coverage will be enough. Also, you have to choose carefully between permanent and temporary policies, weigh your options with regard to your current financial situation and your future needs.
Whole life insurance also acts as an investment. Apart from the death benefit component, it is also made up of a savings component. This savings component is what makes whole life insurance investment. When a policyholder pays the premiums, part of it goes to the death benefit while the reminder makes up the cash component.
The cash component can be withdrawn against, but you cannot exceed the amount otherwise the insurer might terminate the policy. It is always advisable to have multiple streams of income and investing more, life insurance is a great option considering that you benefit from both the death benefit proceeds and the savings component.
The wealthier you are, the more your needs, and one of the advantages of being wealthy is that you are able to qualify for bigger loans. These loans are either secured for personal use or for business, either way, you need collateral for these loans. For example, where obtaining an SBA loan, you need to provide a collateral assignment for the loan application to be approved. A collateral assignment allows your lender to become the beneficiary of your life insurance policy.
As such, they receive the death benefit proceeds when you cannot repay the loan. However, the lender shouldn’t have full rights to your death benefits, you need to list a loved one as a beneficiary to avoid losing everything to the lender even when it is more than the remaining loan amount. The best kind of life insurance to buy in such a scenario is term life, it allows you to match the term period of the policy with that of the loan. So if your loan matures in 15 years, then you can lock in a 15-year term life policy.
Paying Off Debts
Another reason why high net worth people need life insurance is to help pay off debts. For instance, if operating a business, then chances are that you have borrowed before to boost your business. And sometimes, things don’t always go well, and you are not sure if your business will be able to afford what you owe creditors in the future.
Having a life insurance policy is a good way to ensure that you have a source of income in case you don’t have the capacity to pay off debts in the future. Whole life insurance policies are the best since they have a cash value component that grows throughout the life of the policy. So if you have no means to pay your creditors you can use this cash value component which is the savings component of the policy.
To Pay Final Expenses
Being a high net worth does not mean that there won’t be a need to pay for your final expenses. Your loved ones will still have final expenses to pay for once you pass on, and this can be financially draining especially when they have to dig into their pockets to cater to these expenses. To prevent leaving a financial burden to your loved ones when you pass on, buy life insurance. This way, the death benefit is used to pay for their funeral and burial expenses.
Also, if the policyholder falls ill before passing on, the medical bills can also be cleared using the policy benefits. Even when you are buying life insurance for over 50 years, there are always good packages that you can find on this website. So when buying life insurance specifically for your final expenses, consider getting coverage big enough to pay for all the expenses. If you want, you can opt for bigger coverage, then the remaining death benefit after the final expenses are paid for goes to your beneficiaries.
When you have more assets and wealth in your name, your needs are not the same as those of the average Joe. Once you decide why you need a life insurance policy, you also need to choose whether you want to go term or whole life. Of course, this is depended on your needs. Also, you don’t have to pay very high premiums for coverage more than you need, if there is a cheaper option with the right amount of coverage for your needs, then well and good.