Protection is a cornerstone of financial planning, offering peace of mind to individuals and their loved ones. As an industry we understand its importance, but discussing protection with high net worth clients presents unique opportunities and challenges for advisers.
What are the opportunities?
Wealth transfer and estate planning: high net worth individuals often have significant assets that they wish to preserve and transfer to future generations. Protection can play a crucial role in estate planning, by providing liquidity to cover estate taxes and ensure a smooth transfer of wealth.
Asset protection: beyond providing for loved ones, life insurance can help protect assets against creditors and other potential threats. By putting life insurance policies in trust, advisers may be able to help clients protect their wealth.
Tax efficiency: high net worth clients are often concerned with minimising tax liabilities. Life insurance offers tax-free death benefits when written in trust, making it an option to consider for wealth preservation and transfer. Directors have access to tax efficient life cover via Relevant Life plans. Remember that premiums paid in respect of a policy written in trust may be viewed as gifts. In the majority of cases, an exemption will apply, but for some there could be tax implications.
Business continuity: for high net worth individuals who own businesses, protection solutions can ensure business continuity in the event of the owner's and/or a key employee's death or critical illness. Advisers can work with business owners to implement key person insurance or shareholder protection to help towards safeguarding the future of their business.
Things to consider
Product complexity: high net worth clients may have sophisticated financial needs and objectives, requiring tailored solutions. Choosing the right solution for clients can be challenging. We offer a team of specialists with years of expertise in this area, that can help you create the right solution.
Cost: while life insurance can offer substantial benefits, premiums for policies catering to high net worth individuals can be significant. Advisers must carefully balance the cost of insurance with the desired coverage and overall financial objectives of the client. Providers' tools can make this easier for you. Our whole of life value calculator can help you demonstrate the value of taking out a guaranteed whole of life policy, and paying the premiums, compared to saving the amount of those premiums in a bank account earning interest up to 6% pa.
Underwriting challenges: high net worth individuals may have unique health and lifestyle factors that can complicate the underwriting process. Advisers need to be prepared to navigate these complexities and work with providers to secure the best underwriting terms. Again, providers are on hand to support you with many (including Royal London) offering specialist underwriters who are experts in handling larger cases with complex financial underwriting requirements. And with our Underwrite Later option, we put cover on risk immediately while we wait for the medical information we need to fully assess the application. This means high net worth clients will have peace of mind knowing they're protected from day one.
Policy ownership and beneficiary designations: the ownership structure and beneficiary designations of life insurance policies can have significant implications for estate planning and tax considerations. Advisers must carefully review and update these aspects to align with their client's overall financial strategy. All providers will offer trust solutions to help with this – we also offer beneficiary nomination which is a simpler alternative for clients whose situation is straightforward and they know who they currently want to benefit. Remember any terminal illness claims would be paid to the plan owner and would form part of the taxable estate on their death.
Strategies for success
Taking the time to understand the unique needs and objectives of each high net worth client is crucial. Based on this, you can then tailor protection recommendations to align with their financial goals and legacy aspirations.
Aligned to this, educating clients about the various types of life insurance products available is also important. The duty of transparency in discussing costs, risks, and potential outcomes also builds trust and confidence in the adviser-client relationship.
Working with specialists can help simplify the complex and support you with your high net worth clients. As well as providers, you should engage with legal and tax professionals to ensure that life insurance recommendations are integrated seamlessly into the client's overall estate and financial plan. Collaboration with specialists enhances the depth and breadth of advice provided to high net worth clients. And there's always the opportunity for future referrals from these professional connections.
Advising high net worth clients on protection presents both opportunities and challenges for financial advisers. By adopting the strategies above, advisers can effectively navigate this complex landscape and provide valuable guidance to help clients achieve their financial goals and protect their legacy. Protection remains a powerful tool in the arsenal of wealth management, and its strategic integration can unlock tremendous value for high net worth individuals and their families.
