Purchasing Life Insurance for the Ultra-Wealthy

The most common reasons someone with a net worth of $100 million purchases life insurance are liquidity, wealth transfer, and income replacement.

• Liquidity. It’s common for the ultra-wealthy to have their wealth tied up in assets that cannot be sold in time to pay estate taxes. Life insurance can be used to provide this liquidity.
• Wealth Transfer. Life insurance can be used to minimize estate taxes.
• Income Replacement. While not that common among the ultra wealthy, income replacement is still an issue.

The ultra wealthy typically buy universal life because the premiums are flexible and these policies build cash value. When purchasing policies with multi-million-dollar death benefits, carrier stability is crucial. Advisors should consider purchasing policies from multiple carriers to hedge against the risk of an insolvent carrier.

See Beyond High Net Worth: Insurance Needs of the Ultra Wealthy, Wealth Strategies Journal, Nov. 1, 2010.

Special thanks to Jim Hillhouse (WealthCounsel) for bringing this to my attention.