Despite the drastic change in estate tax regulations (which nearly doubled the amount of wealth eliminated from federal estate taxes), there are still a number of reasons the wealthy should purchase life insurance. Even though the exceptionally wealthy can clearly afford final expenses and take care of family members financially, there are reasons to have life insurance even for the rich.
- Estate equalization: When those with a large amount of wealth want to distribute assets evenly, especially where illiquid assets – assets that can’t be sold or exchanged for cash without a drastic drop in value – are concerned, life insurance is a practical way to be financially fair.
- Paying for corporate benefits: Life insurance is a strategy used by companies, including those owned by the wealthy, to cover the cost of certain corporate benefits for specific employees and owners. Tax advantages that come with life insurance make this method highly effective.
- Protecting business owners: Life insurance is used by wealthy business owners for key person policies and backing buy/sell agreements.
- Obtaining loans: Depending on the venture, life insurance may be a requirement to obtain substantial loans.
- Privacy and asset protection: Life insurance, in some states, is a way to legally protect the privacy of the cash payout and other funds from unwarranted or flippant lawsuits.
- Replacing assets donated to charity: For the wealthy who leave assets to charity, life insurance is a way to replace the monetary value of those assets to give to their loved ones.
- Estate tax: For the super wealthy, cash and assets may extend beyond the roughly $11 million safe from federal estate taxes. Life insurance is a way to replace what is lost through tax payments.
Individuals who understand how to manage their wealth, recognize that life insurance is not just a tool to add to the financial portfolio, but rather an asset that can help manage and secure finances when needed.
While the wealthy may not need the financial benefit of life insurance, those who properly manage their estate know the value of obtaining a policy to cover different financial obligations. Those with a great amount of wealthy usually built their assets through saving and planning strategically – which is a lesson everyone can utilize.