Life insurance for high-net-worth individuals

Wealthy individuals with a net worth over $1 million can use life insurance as income replacement, an investment vehicle, or protection against estate taxes.

Amanda Shih author photoKatherine Murbach Policygenius

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Amanda Shih

Amanda Shih

Editor & Licensed Life Insurance Expert

Amanda Shih is a licensed life, disability, and health insurance expert and a former editor at Policygenius, where she covered life insurance and disability insurance. Her expertise has appeared in Slate, Lifehacker, Little Spoon, and J.D. Power.

&Katherine Murbach

Katherine Murbach

Associate Editor & Licensed Life Insurance Expert

Katherine Murbach is an associate editor and a licensed life insurance expert at Policygenius. Previously, she wrote about life and disability insurance for 1752 Financial, and advised over 1,500 clients on their life insurance policies as a sales associate.

Edited byAntonio Ruiz-Camacho

Antonio Ruiz-Camacho

Associate Content Director

Antonio helps lead our life insurance and disability insurance editorial team at Policygenius. Previously, he was a senior director of content at Bankrate and CreditCards.com, as well as a principal writer covering personal finance at CNET.

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Maria Filindras

Maria Filindras

Financial Advisor

Maria Filindras is a financial advisor, a licensed Life & Health insurance agent in California, and a member of the Financial Review Council at Policygenius.

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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 all about life insurance for individuals with high net worth, including policy options to create a coverage plan that maximizes 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 investment account if you’ve maxed out traditional accounts.

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

Why wealthy individuals should consider buying 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 totaling more than $12.06 million, [1] estate taxes could significantly decrease the inheritance your family gets when you die. Since the life insurance death benefit is almost always tax-free, a policy could potentially cover the estate tax and preserve an inheritance. If you are a high-net-worth business owner, life insurance can protect the function of your business, too. 

Life insurance also protects you against a worst-case scenario. If you become seriously ill and pass away, medical bills could deplete the savings you set aside for your future, and leave your family with limited support. With a policy in place, the expenses wouldn’t jeopardize your beneficiaries’ financial future.

What is considered a high-net-worth individual?

“High-net-worth individual” is a term commonly used in the financial industry. You’re typically considered a high-net-worth individual if you have $1 million or more in liquid financial assets. You could be categorized as ultra-high-net-worth once your liquid assets are $10 million or higher.

How to use life insurance to build wealth

Life insurance can be used to build wealth across generations by providing a benefit to your surviving loved ones. As mentioned above, the life insurance death benefit can be used to pay estate tax, as well as preserve remaining assets. In this way, life insurance as an estate-planning tool is more designed to protect wealth rather than to build it. 

Permanent policies also have a cash value component, so you can take loans out against your cash value if it accumulates enough. In this case, you’re technically taking a loan from the insurance company, so your cash value itself still gains interest. It’s important to note that any outstanding loans will be subtracted from the death benefit if you die before paying it back. This means your beneficiaries would receive less money. 

It’s generally best practice to consult with a financial planner and eventually a wealth manager to come up with a financial strategy that’s going to serve your needs when it comes to building and maintaining wealth.

Types of life insurance for high-net-worth applicants

The type of insurance you choose depends on your financial goals. If you’re concerned about taxes shrinking the assets you hope to pass on, then you may just want enough term life insurance to account for those charges or to create a nest egg. But 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.

Term life insurance 

Policygenius advisors recommend buying a life insurance policy equal to at least 10 to 15 times your income. But not every insurer can take on the financial risk of paying out a multi-million dollar death benefit. Look at one of the larger life insurance companies, which are more likely to be able to process and support policies with high coverage amounts.

If you’re getting life insurance coverage to offset your estate taxes, then the right company for you will depend 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.

Permanent life insurance 

Term life insurance is best for most people, but high-earners who have already maxed out other tax-deferred savings accounts could consider whole life insurance or other permanent policies with a cash value that gains interest. Certain cash value accounts can protect your money from stock market fluctuations. A traditional investment account usually offers higher returns, but some cash value returns are more predictable.

There are some downsides to permanent life insurance — it's more complicated than a term policy and its five to 15 times more expensive. Talk to a financial advisor to determine what is best for you.

→ Learn more about having liquidity in your life insurance

Irrevocable life insurance trusts (ILITs)

If you're wealthy, trusts are probably already part of your estate plan. An irrevocable life insurance trust (ILIT) is an irrevocable trust, meaning it can’t be altered. It is used solely to hold a life insurance policy (the trust is the policyholder, and has an appointed trustee). When you die, the trust collects the death benefit and the trustee distributes the money to the trust’s beneficiaries.

An ILIT is particularly useful when your intention is to pass wealth onto your children, and it can have some estate tax benefits. Work with an estate attorney to ensure your trust is set up correctly.

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The best life insurance companies 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 want to maximize your investment options, a permanent policy might be a better fit.

Methodology: How we chose the best life insurance companies for high-net-worth individuals of 2022

We don't get paid for our company reviews and use an extensive rubric of criteria covering policy details, price, financial confidence, third-party ratings, and customer experience to assign unbiased ratings out of five stars. Any recommendations we make are based on internal and external expert opinions and data from our Policygenius Price Index, which uses real-time rate data from leading life insurance companies to determine pricing trends.

Our ratings and reviews can help point you to an insurer you can rely on for your family’s financial protection, but the best life insurance company for you is dependent on multiple factors. A licensed agent at Policygenius can work with you through the application process so you’re getting coverage from the best insurer for your circumstances at the most competitive price.

→ Read more about our reviews methodology here

Best term life insurance for high-net-worth individuals

Lincoln Financial

Policygenius rating 

Our proprietary rating methodology takes multiple factors into account, including customer satisfaction, cost, financial strength, and policy offerings. See the "methodology" section for more details.

Full orange starFull orange starFull orange starFull orange starHalf orange star

4.7

AM Best rating 

A.M. Best is a global credit rating agency that scores the financial strength of insurance companies on a scale from A++ (Superior) to D (Poor).

A+

Cost 

Using a mix of internal and external rate data, we grade the cost of each insurance company's premiums on a scale from least expensive ($) to most expensive ($$$$$).

$

$

$

$

$

No-med-exam option

Why we chose it

Lincoln Financial offers a diverse array of life insurance policies, including competitive no-med and high-net-worth options.

Read our full Lincoln Financial review
Pros and cons

Pros

  • Affordable for older applicants

  • No-med option available

  • Very fast turnaround

Cons

  • Expensive permanent policies

  • Few online tools

Lincoln Financial is our top recommendation for high-net-worth individuals buying term life insurance. Lincoln offers some of the highest death benefits compared to other companies on the Policygenius marketplace. You can buy up to $60 million in coverage from Lincoln if your income and assets justify it.

Best whole life insurance for high-net-worth individuals

MassMutual

Policygenius rating 

Our proprietary rating methodology takes multiple factors into account, including customer satisfaction, cost, financial strength, and policy offerings. See the "methodology" section for more details.

Full orange starFull orange starFull orange starHalf orange starEmpty gray star

3.8

AM Best rating 

A.M. Best is a global credit rating agency that scores the financial strength of insurance companies on a scale from A++ (Superior) to D (Poor).

A++

Cost 

Using a mix of internal and external rate data, we grade the cost of each insurance company's premiums on a scale from least expensive ($) to most expensive ($$$$$).

NR

All 50 states

Why we chose it

MassMutual’s whole life insurance plan provides a lifetime coverage option that builds cash value with the potential to earn dividends.

Read our full MassMutual review
Pros and cons

Pros

  • Strong financial stability ratings

  • Potential for dividends

  • Offers a variety of permanent life insurance products

Cons

  • No option to skip the medical exam

  • High premiums

MassMutual is our pick for whole life insurance overall. In addition to having high coverage amounts available — $10 million or more — MassMutual pays dividends to its whole life policyholders, which means your cash value can grow faster. Plus, the company has high financial ratings from trusted third-party agencies like A.M. Best, so you can count on the company to be financially stable.

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Is life insurance considered an asset for high-net-worth individuals?

Term life insurance isn’t considered an asset in most cases, but whole life insurance usually is. Whether your life insurance policy is an asset depends on whether you’ll financially benefit from the policy while you’re alive. 

Because the cash value of a permanent policy functions like an additional investment account, which you can withdraw from or take a loan against, it’s treated like an asset the same way a traditional retirement account is.

Because term life only pays out after you die, it could only become an asset if it pays out to your estate (instead of an heir) and your estate exceeds the $12.06 million tax limit.

Getting life insurance as a high-net-worth applicant

The process of buying a life insurance policy if you have a high income is similar to getting any other life insurance policy. There are a few common considerations:

  • Pick between term or permanent life insurance. The type of policy you choose impacts how much you’ll spend on coverage, whether your life insurance can be used for additional investing, and how your cash value is invested.

  • Choose the best company for your health history. Every life insurance company weighs the risk of health conditions differently. For example, people with diabetes might get better rates with one company than another.

  • Decide which policy options are important to you. Not every insurer offers the same riders or policy options, which can matter if you need to customize your policy.

If you also have a high net worth, there are additional factors to weigh:

  • How does your policy fit into your financial plans? Your needs will differ if you’re simply trying to leave an inheritance for your heirs instead of trying to build additional wealth.

  • Who will be the beneficiary? For most people, family members are their beneficiaries. But if you have significant assets and want to prevent your policy from contributing to estate taxes, then you might make a trust your beneficiary instead.

  • How much coverage do you need? Not every life insurance company can offer payouts into the high millions. You may have fewer options — usually older and more well-established companies — if you need a very high coverage amount.

Comparing quotes and policy features from different life insurance companies is the best way to find a policy that protects your family and fits all of your needs. A Policygenius agent can shop around for you so you get the right coverage to protect your legacy.

A life insurance policy adds a layer of protection to your finances, no matter what your net worth is. 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 or building additional wealth to pad your retirement fund.

Frequently asked questions

Do you need life insurance if you have a high net worth?

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.

References

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Policygenius uses external sources, including government data, industry studies, and reputable news organizations to supplement proprietary marketplace data and internal expertise. Learn more about how we use and vet external sources as part of our

editorial standards.
  1. Internal Revenue Service

    (IRS). "

    Estate Tax

    ." Accessed April 28, 2022.

Authors

Editor & Licensed Life Insurance Expert

Amanda Shih

Editor & Licensed Life Insurance Expert

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Amanda Shih is a licensed life, disability, and health insurance expert and a former editor at Policygenius, where she covered life insurance and disability insurance. Her expertise has appeared in Slate, Lifehacker, Little Spoon, and J.D. Power.

Associate Editor & Licensed Life Insurance Expert

Katherine Murbach

Associate Editor & Licensed Life Insurance Expert

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Katherine Murbach is an associate editor and a licensed life insurance expert at Policygenius. Previously, she wrote about life and disability insurance for 1752 Financial, and advised over 1,500 clients on their life insurance policies as a sales associate.

Editor

Associate Content Director

Antonio Ruiz-Camacho

Associate Content Director

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Antonio helps lead our life insurance and disability insurance editorial team at Policygenius. Previously, he was a senior director of content at Bankrate and CreditCards.com, as well as a principal writer covering personal finance at CNET.

Expert reviewer

Financial Advisor

Maria Filindras

Financial Advisor

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Maria Filindras is a financial advisor, a licensed Life & Health insurance agent in California, and a member of the Financial Review Council at Policygenius.

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