Life Insurance for High Net Worth Individuals

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Posted 15th February 2021 by James Holden

If you have a net worth of over £670,000 then you’re in the richest tenth of individuals in the UK1 and should consider ways to protect your wealth. With money put aside in savings and/or significant equity in property you may not feel your circumstances require you to purchase life insurance policies. However, life cover is an especially important product for wealthy people to mitigate their financial risk and protect their family’s future.

Do wealthy people need life insurance?

A term insurance policy will pay out a lump sum on your unexpected death. The life insurance proceeds can be used as an effective way to pass on your wealth to your beneficiaries, without the need to dispose of your assets or pass on debt to your children.

Wealthy individuals will need to consider many factors when determining how much protection they require. Firstly, there’s Asset Protection – how much is outstanding on any loan or mortgage? Secondly there’s Business Protection – how will cash flow be protected if you were to suddenly become terminally ill or pass away? Thirdly there’s Financial Protection – would your family have easy access to enough cash liquidity in the event of your death?

life insurance for wealthy - high net worth uk

What are the tax benefits of life insurance?

One major reason high net worth individuals (hnwis) take out life insurance is due to estate planning. Whilst you will not pay income tax on an insurance payout, you might pay estate taxes. In the United Kingdom, inheritance tax is charged at 40% on everything you leave behind above the £325,000 threshold.2 Therefore, as part of your financial plan, you may want to get a life policy which is at least equivalent to 40% of your estate’s value above the threshold, to ensure your loved ones do not need to sell any assets in order to pay the estate tax obligation.

Without suitable cover would your family be able to keep their homes if saddled with the tax liabilities of your estate?

For further protection against taxes hnwis often place their life insurance cover in trusts. This is a cost effective way to remove any payout from the taxable estate. Protect Line is a life insurance broker which offers trusts as a free additional service to all clients.

[Inheritance tax planning and trusts are not regulated by the Financial Conduct Authority.]

Michael took out life insurance with Protect Line to protect his family against future estate taxation.

How much does £1,000,000 life insurance cost?

Getting quotes for a one million pound payout may sound like it’ll be expensive, but for hnwis it can be very affordable and cost effective. A seven figure policy isn’t unusual in the industry and can help maintain generational wealth. It can also be the catalyst for taking your family to cash millionaire status if they weren’t already.

The younger you are when you take out cover the cheaper it is. For example, a 30-year-old with perfect health and lifestyle, taking out £1,000,000 of cover until the age of 60, could cost as little as £25.47 per month. The same cover taken out at age 40 could make the cheapest option as much as £50.92 per month.3

[Protection plans with no investment element will have no cash in value at any time and will cease at the end of the term. If premiums are not maintained, then cover will lapse.]

Do Billionaires have life insurance?

Insurance is a popular way for hnwis to maximise their after-tax affluence and have more money to pass on to their heirs. Even the richest people in the world use insurers to protect their families against the very real risk of critical illness or early death. Protecting income is seen as a worthwhile investment, knowing that their loved ones could be saddled with debts from an unexpected situation out of their control.

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If you have any questions or would like a bespoke quote, get in contact with the UK’s most trusted broker, Protect Line. We have the expertise, confidentiality, and most importantly the right financial products for your needs.

 

  1. https://www.bbc.co.uk/news/uk-48759591
  2. https://www.gov.uk/inheritance-tax
  3. Life insurance quotes generated on www.protectline.co.uk using the Webline service and are accurate as of 28/01/21
Protection plans with no investment element will have no cash-in value at any time and will cease at the end of the term. If premiums are not maintained then cover will lapse.
Critical illness plans may not cover all definitions of a critical illness. The definitions vary between product providers and will be described in the Key Features and Policy Document if you go ahead with a plan.