Life insurance for high-net-worth individuals

People with a high net worth over $1 million can use life insurance to protect their income, estate, and investments.

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Most people buy life insurance to provide a tax-free lump sum that their loved ones can use to pay off debts and plan for their future. But if you have a high annual income or high net worth, you can still use life insurance as a tool to protect an inheritance or support your family. Learn about the policy options available for high-net-worth individuals so you can create the best life insurance plan to maximize your wealth.

Key Takeaways

  • High-earners and wealthy people can use life insurance to pay estate taxes on a large inheritance

  • Cash value life insurance offers an alternative tax-deferred savings account if you’ve maxed out traditional accounts

  • Life insurance trusts can be used alongside permanent life insurance to maximize assets

Why rich people still need life insurance

If you’ve saved enough money, you might be able to self-insure. But don't assume that because you’re living comfortably now, you won’t need financial protection in the future.

You may have enough savings to pay off a mortgage, pay your child’s college expenses, and leave your spouse with a nest egg. But if you have assets greater than $11.70 million, estate taxes could significantly decrease the inheritance your loved ones receive upon your death. Since the life insurance death benefit is almost always exempt from taxes, a policy can cover the estate tax and preserve an inheritance.

Life insurance is protection against the worst-case scenario. For example, if you become seriously ill and pass away, medical bills could deplete the savings you set aside for your future, but with a life insurance policy in force, the expenses wouldn’t jeopardize your beneficiaries’ financial future.

The best life insurance for high-net-worth individuals

The best life insurance company for you depends on your financial needs and why you’re purchasing life insurance. If you have a high income you may need a company that offers term life insurance with death benefits large enough to replace your earnings.

If you’re concerned about estate taxes shrinking the assets you hope to pass on, then you may just want enough coverage to account for your taxes. And if you’re interested in finding another way to grow your tax-deferred savings, then a cash value life insurance policy might be better for you.

A certified financial planner or licensed Policygenius agent can help you determine which strategy is most advantageous for you.

Term life insurance for high-net-worth individuals

Policygenius advisors recommend buying life insurance 10-15x your income, but not every provider can take on the financial risk of paying out a multi-million dollar death benefit. We recommend looking to one of the larger life insurance companies, which are more likely to be able to process and support policies with high face values.

If you’re getting life insurance coverage to pay for your estate taxes, then the right company for you depends on the size of your wealth. Your loved ones will need to pay taxes of up to 40%, so you should get the most affordable policy with a death benefit equal to or greater than your anticipated tax burden.

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Permanent life insurance for high-net-worth individuals

Term life insurance is best for most people — it’s simple and affordable — but high-earners who have already maxed out other tax-deferred savings accounts could consider whole life insurance because it has a cash value component that gains value. Certain cash value accounts can protect your money from the ebbs and flows of the stock market. A traditional investment account usually offers greater returns, but your life insurance cash value’s returns will often be more consistent.

There are some downsides to permanent life insurance — it's more complicated than a term policy and it’s five to 15 times more expensive — so you should talk to a licensed expert to determine what is best for you.

→ Learn more about the pros and cons of having liquidity in your life insurance

Irrevocable Life Insurance Trusts (ILITs)

If you're wealthy, you likely already use trusts as part of your estate plan to provide for future generations. An Irrevocable Life Insurance Trust (ILIT) is an irrevocable trust, meaning it usually can’t be altered. It is used solely to hold a life insurance policy (as the policyholder with an appointed trustee), so when you die, it collects the death benefit (as the policy's beneficiary) and distributes the death benefit to the beneficiaries of the trust.

An ILIT is particularly useful when your intention is to pass wealth onto your children and it can have certain estate tax benefits. Talk to your financial planner, estate attorney, or licensed life insurance expert to learn more.

While you may feel financially secure now, a life insurance policy adds a layer of protection to your finances. Even if you’re confident that your beneficiaries won’t need the death benefit to support themselves, a policy can go toward paying down your estate taxes so that your heirs won’t have to, or building additional wealth to pad your retirement fund.

Frequently asked questions

Do high-net-worth individuals need life insurance?

If anyone depends on your income or if your beneficiaries will pay an estate tax on their inheritance, you can use life insurance to provide for their expenses even if you have a high income or high net worth.

How does net worth affect life insurance?

Your net worth impacts how much life insurance coverage you can buy. The higher your income or net worth, the more coverage you can be approved for, and vice versa.

What is the best life insurance for high-net-worth individuals?

The best life insurance policy differs for every person depending on their needs, but high-net-worth individuals may need to work with larger life insurance companies that offer higher death benefits and may benefit from permanent life insurance more than most people.