Saturday 4th of February 2023

What Insurance Services Do HNIs Need?

As a High Networth Individual (HNI) you might think that your wealth can cover your need and every eventuality. Here, we will look at how insurance can help you cut down on costs while keeping your personal and business assets protected thus ensuring peace of mind across a wide range of eventualities.

What types of high networth insurance would I need?

The type of cover that you would require would fall into two broad categories –

  • Life Insurance – To help you protect your wealth from creditors and estate / inheritance taxes and for providing liquidity and continuity for your wealth to grow through eventualities.
  • General Insurance –  To help protect your wealth and assets against legal liability, theft, fire, floods and other unexpected events, natural and unnatural. Such protection includes medical or health insurance, home insurance, art and collectibles insurance etc.

What are the benefits of high networth insurance?

We will examine several scenarios where high networth insurance can benefit you –

Paying off debt – This is especially applicable if you have purchased personal or business assets via leveraging. Adequate life insurance will help you pay off your debts in the event of your death or disablement or critical illness striking you.

Providing liquidity – Insurance payouts can provide your family with sufficient liquidity to cover their lifestyle needs and expenses till your estate is settled. And, they carry tax benefits too in the sense that insurance maturity payouts are not liable for taxation. In India, for example, this is as per Section 10(10D) of the Income Tax Act, 1961. Similarly, in some tax jurisdictions insurance payouts will not form part of the estate and will hence be exempt from estate taxes.

Repair or replacement funding – Insurance used to cover your valuables like art or other collectables can be used to repair damaged valuables or fund their replacement or provide compensation in case of loss or theft or complete damage.

Tax liability funding – If estate or inheritance taxes are applicable in the jurisdictions where your assets are located your heirs may be faced with the prospect of making these payments. Capital gains taxes may also be triggered if assets get liquidated. Insurance payouts can provide ready cash for settlement of these charges / taxes.

You could also use Irrevocable Life Insurance Trusts to receive the value of your life insurance policies. The payouts received from these policies will go to these trusts and will not form part of your estate and probate process. These funds can then be used to settle taxes and other charges. They can also be used to provide an independent income flow to your beneficiaries.

Here, insurance also plays a role in estate planning.

Legacy planning – You can use insurance proceeds to equalize assets amongst beneficiaries. Let’s assume that you want to pass on a prosperous business to one beneficiary while you want to leave a cash equivalent for your other beneficiary who is not interested in the business. An insurance payout can be used to smoothly manage such a situation.

You can also use insurance payments to endow the causes that you care for or to reward loyal / long-serving staff with bequeaths. You can do this without having to draw down from your estate.

Business succession planning – Keyman insurance and buy-sell insurance can help you ensure your business is well funded or has sufficient cash to buy out a deceased partner’s share.

HNIs like you with considerable assets often cannot be covered by standard insurance policies because the sums assured are significantly greater than those which standard insurers will provide cover for. Which is why you need high networth insurance.

Just remember this thumb-rule: the more assets you have, the more insurance you will need to maintain, preserve and protect them.

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