Life insurance is such a versatile tool. It can be used as collateral to secure a loan, protect your partnership or your business, ease wealth transfer and help your legacy to live on long after you are gone.
But so many of these Life Insurance applications are focused on entrepreneurs. Entrepreneurship comes with its fair share of uncertainty. One bad turn can wipe the accounts clean. Entrepreneurs want a safety net – they need a safety net because they don’t have the certainty of a paycheck hitting the bank account on the 30th of every month. And so, they turn to Life Insurance.
With top-performing, top-earning executives, the picture is a little different. They have financial certainty in the present, and if I may say so, the ‘illusion’ of financial certainty in the future. The thing is, the picture isn’t always so rosy for them once the security of their C-suite jobs is taken away.
In line with this challenge, a few months ago I wrote about the unspoken C-suite dilemma: The major personal finance challenges that C-suite executives face.
In a nutshell, these high-flying executives typically have:
- Fully paid, debt-free fixed assets like property
- Expensive personal belongings
- A hefty benefits package that allows them to live extremely comfortably.
The problem is, this scenario comes with an expiry date. Time for a little story.
Sahil’s Situation
Early 2022, one of my high-income executive clients, Sahil, came to me to sort out his finances and make sure that his wife and children would be taken care of upon his death, whenever that happened.
Let me tell you a little bit about Sahil first.
Sahil is an executive at a big Fortune 500 company. He makes an extremely comfortable annual income of about US $1.1 million.
Like the typical successful, high-income executive, Sahil has a hefty benefits package from his organization – business or first-class travel everywhere, top-tier medical insurance, a good Group Life Insurance policy, house rent, school fees – all covered.
So, the salary that he takes home after all expenses are covered is all net savings or ‘lifestyle income.’ As a result, Sahil and his family have gotten used to a high-income lifestyle.
The Problem
As a part of the company’s Group Life Insurance plan, and given Sahil’s level of seniority in the organization, he will be owed about $2.5million dollars worth of Life Cover at the time of his death. This benefit, however, only stands if he is still an employee of the organization at the time of his passing.
If he retires or for any reason is let go before that time, he loses that cover completely.
To continue to enjoy the protection of a Life Insurance policy, Sahil would then have to go out and procure a privately-purchased policy that he pays for out of pocket.
Impossible? Maybe, maybe not. Sahil’s age and the state of his health will affect whether or not he can get a Life Insurance policy.
Expensive? Very likely so. Sahil’s age and the state of his health will also dictate his premiums, but I can tell you for sure that a policy at age 60 is going to cost a lot more than a policy purchased at 45 or 50. A lot more.
For many executives, this scenario only comes into sight after a long, two to three-decade run in the corporate world. Their age and the state of their health when they step out of the luxury of a corporate benefits package might mean that they are either uninsurable or paying extremely high premiums for their Life Insurance policies.
Sahil does have investments and a property portfolio but neither of these provide the immediate liquidity that his wife and children might need upon his passing. It could be a while before property can be sold or invested funds and returns can be released to the family. In many cases, Life Insurance is the only pay out the pays out when the family needs it most.
Sahil’s wife is a savvy, and financially independent working professional. Having the life insurance payout come in and replace Sahil’s lost income, however, would alleviate any immediate financial distress. It would mean that the family would be able to continue living at the level of comfort that they are used to – a valuable benefit through what is likely to be a trying time for them.
With major assets like houses and other properties paid off, Sahil has the chance to not just provide added financial reassurance, but also to maximize their after-tax estate and be able to pass on more money to the family.
If the goal is to create a surefire safety net, then Sahil has managed to do just that. His family’s future is now secure, and their assets and investments are well-planned and positioned for easy wealth transference.
The Solution: Start Small, But Start Today
Sahil ultimately took out a universal life insurance policy worth US$ 5 million and another US$ 1.25 million worth of critical illness cover – making the total US $6.25 million.
While this is not a huge amount, a lot of executives start with smaller policies and build on them over time. By doing this, they are not over-committing financially and can continue to focus on other investments and financial plans alongside.
With this Life Insurance policy in place, Sahil’s family can count on investing the whole sum and will be sure to receive at least $300,000 per year assuming that the growth rate per annum is 5%. With their home paid for and being debt-free, that sum would remain completely available for them to support their lifestyle.
While high income executives might have everything in place while they are still employed, it’s important to think about what happens after. Corporate careers can be fast and exciting and leave you with little time to think about what happens beyond the job.
While there is no one-size-fits-all, a carefully planned and well-executed life insurance policy can be an immensely powerful tool in succession planning. Getting all the right Life Insurance policies in place, and preferably even paying for a private medical insurance policy while still comfortable in a high paying corporate job will ensure that your personal finance is in order for anything that may come next.
Getting the right amount of Life Insurance cover, Critical Illness and Medical Insurance might seem like unexciting prospects – but they serve you if and when the worst happens.
These safety nets break the fall when you need them most.
Reach out to me to get your Life Insurance policies reviewed or to talk about options for getting a safety net in place to secure yours and your loved ones’ futures.
