Why Wealthy People Need Life Insurance

Introduction

Life insurance is often over-looked by wealthy people on the assumption that, in the event of death, there will be sufficient assets for their family to remain financially comfortable.

As such, many wealthy people can be woefully under-insured which can then place a financial burden on the remaining family members.

Term Assurance

As an example, let’s look at the benefits of Term Assurance which is designed to pay a lump sum on the unexpected death of the policyholder during the term of the policy.

In our example, we’ll assume a sum assured of £1m and a term to age 60. The premiums will be based on current rates assuming our policyholder is a non-smoker and in general good health.

Premiums

Premiums for life insurance are relatively cheap and the earlier cover is taken out, the cheaper the premiums will be, as follows:

Age 35 - £39.57 pm
Age 40 - £54.93 pm
Age 45 - £69.27 pm
Age 50 - £93.57 pm

Note - rates as at 01/09/2024

For someone age 50, the premiums over the term of the policy will be £11,228 for a potential benefit of £1m. This, effectively, is the cost of the peace of mind that surviving family members will remain financially comfortable should the worse happen.

Benefits of Term Assurance

So what are the benefits of Term Assurance if a policyholder already has significant other assets?

Firstly, the policy can ensure that the beneficiaries have sufficient liquidity to meet their general living expenses. This is particularly relevant where the deceased’s assets are relatively illiquid, for example, investments in property, overseas assets or other illiquid investments.

Secondly, the beneficiaries don’t have to sell assets that would otherwise have been earmarked for the long-term. For example, making capital withdrawals from an investment portfolio or drawing down pension benefits earlier than intended.

Thirdly, the beneficiaries can use the money to pay down any debts, for example, a mortgage, without having to sell any assets.

Estate Planning

Term Assurance policies can also be used as a way of protecting beneficiaries when making large gifts to ensure that any potential IHT liabilities are covered if death occurs within seven years of making the gifts.

Trust

The insurance policy should be placed in Trust so that benefits can be paid relatively quickly without the need for probate and also it ensures that the benefits don’t form part of the estate for Inheritance Tax purposes.

Conclusion

Term Assurance policies can be a relatively cost effective way for wealthy individuals to have the peace of mind that their families will have sufficient money should anything happen to them. As such, Life Insurance should form part of any financial planning strategy.