Category: Life Insurance Blog
Why Wealthy People Choose Life Insurance
August 31, 2016 Richard Reich
There’s a common misconception out there when it comes to wealthy people and life insurance. After all, losing a breadwinner can mean complete financial disaster for the average family, so it makes sense that middle income households will have some sort of life insurance policy on the books. But what about the wealthy? If you have several million dollars in the bank, your family probably doesn’t need that same financial safety net. Right? Well, it’s not quite so simple. As it turns out, wealthy people do buy life insurance, and there are a number of different reasons why. Here’s a rundown of a few of the benefits of life insurance for the rich.
- Liquidity – Just because someone has a high net worth, it doesn’t mean their wealth is easy to access on short notice. More often than not, their money is tied up in non-liquid assets like real estate, which can take months (or longer) to turn into cash. Even certain investments that might be liquidated more readily can take time to convert to cash—and this might actually do more damage in the long run if the investment is emptied out before it has had time to reach its full potential. With a life insurance policy, the surviving family is able to cover the costs associated with the unexpected death of a loved one without having to jump through a series of complex and time consuming financial hoops.
- Income Replacement – When a sole or primary breadwinner passes away in a middle income family, life insurance is a crucial part of filling the financial hole they leave behind. The same is true in wealthy households. Granted, the need might be on a different scale, but believe it or not, wealthy people worry about money too. The loss of a breadwinner can still have a profound impact on the financial standing of a wealthy family. Just like in middle income families, life insurance helps to ensure that the family can continue living a more-or-less familiar lifestyle as they grieve and make plans for the more distant future.
- Estate Taxes – Everyone wants to leave something behind for their children and loved ones, but estate taxes can be brutal, especially in the higher tax brackets. However, the death benefit from life insurance is tax-free to the beneficiaries, meaning that the heirs can use the proceeds of a large life insurance policy to pay the tax bill for those wealthy policy holders whose fortunes exceed the estate tax exemption.
This is also where survivorship life insurance policies come in handy. This type of insurance plan covers both the policy holder and his/her spouse and doesn’t pay a benefit until both have passed away. This means that one lone spouse won’t be saddled with the responsibility of paying debts and/or liquidating assets. And it also means that the beneficiaries left behind have a nice tax-free benefit with which to handle the loose ends of the estate.
The bottom line is this: Life insurance is for everyone—from low-income families to the President of the United States, and even undocumented immigrants—no matter what your status or income bracket, life insurance offers value, security and peace of mind in an unpredictable world. And honestly, who wouldn’t benefit from that?