I love this question, especially when it comes to me from my high and ultra-high-net-worth clients: But Rickson, do I really NEED Life Insurance?
You see, for the ultra-high net worth individual ‘need’ is evaluated differently. It’s not an affordability conversation. There is no opportunity cost because when you’ve got unending means and resources, tapping into one opportunity doesn’t mean you miss out on another.
When you have unlimited means and resources, the question isn’t ‘Do I need’ – the question is, ‘If it serves a purpose, then WHY NOT?’
So then: Does Life Insurance serve a purpose for the Ultra-High Net Worth Individual with unlimited resources, cash and otherwise?
For all traditional intents and purposes, no – an ultra-high net worth individual and their families don’t need Life Insurance.
So then why do some of my clients want to get these structures in place? Why does an entrepreneur worth half a billion US dollars, with plenty of liquid cash accessible, want to get a $100 million dollar Life Insurance policy in place?
A few reasons, let me take you through them:
- A ringfenced pot of liquidity
The premiums that you pay into a Universal Life Insurance policy, as well as the payout, can be fenced off completely – an impenetrable pot of money that is ONLY accessible to you and your beneficiaries in absolutely any scenario.
If, for any reason, your assets become inaccessible to you or your family during your life or after, this sum of money might become much-needed accessible liquidity that is outside of the control of bankers, courts, and any other institution.
Think about it: This one aspect alone could have reversed the fates of so many family businesses that lost everything when something went wrong.
- Your family business might need a backup plan
Most family businesses don’t last beyond the second or third generation. This happens because as families grow, more family members, their spouses and extended families are all reaching for a slice of the pie. I won’t go into the reasons and repercussions of this here, but the growing family tree with its many branches can lead to the splitting up of an empire.
Not only is this financially devastating, but it is also emotionally draining for the family.
A Life Insurance policy in the form of partnership insurance can help keep the family business intact by giving the surviving business partner the option to buy out spouses and other beneficiaries of a deceased partner.
More on how partnership insurance works in this video here.
- The Eternal Wealth Formula
A wise client of mine, the patriarch of a family business empire in the UAE, shared this idea with me: Eternal wealth can only be built if you put more into the pot than you take out of it.
Generational money dries up when the second and third generations don’t necessarily understand or follow this formula. As families grow, if the source of income or the pot of wealth doesn’t grow proportionately, that wealth is eventually going to dry out, even if it may seem limitless to begin with.
Life Insurance can be a great way to put a little into the pot and create a 5x, 10x or even a 20x return on what you put in, that is – put more into the pot than you take out of it.
Numbers vary greatly here based on different factors, but just to give you an idea, we’re currently working on a structure where $8 million paid up as lumpsum premiums will provide the family with US$ 50 million liquid life cover should my client pass way.
Do they need the additional $50 million? As of now, they don’t. Will they ever need it?
They might, but Life Insurance might not be an option on the table when they do need it.
- Life Insurance is a product with a finite purchase window
You might not need the liquidity today, but who knows what tomorrow will bring? Life Insurance is always going to be cheaper today than it is tomorrow when you’re a day older.
It is also something that you might not have the chance to purchase in the future. I’ve seen many cases where health complications or simply age have made it difficult or impossible to secure Life Insurance cover.
To illustrate, let me take you back to that client case I just mentioned. That same client for whom we’re working out the $50 million structure. The son aged 41 can buy US$ 50 million of Life Cover at 8 million dollars. The patriarch on the other hand, who is just over 70, would need to shell out 37 million dollars for 50 million dollars of life cover. That’s a BIG difference.
One concern I’ve come up against is over-insuring. Some of my clients, first-generation entrepreneurs who have accumulated abundant wealth, are often worried they might be leaving behind too much for the next generation, creating entitlement and killing ambition.
If that is your concern, remember that you can always downsize a policy, but you can’t always go bigger if you need to.
Additionally, what you leave behind through Life Insurance can remain completely confidential until you want it disclosed. It can be something that stays between you and your insurer, and only gets mentioned in your Letter of Wishes or your will if you so wish.
All in all, think of it like this: If you’ve been driving for 30 years and have been lucky enough to never need your spare tire, does that mean you take the spare tire out of the car?
I hope not. Because if you’ve ever been stuck on the side of a highway in a sweltering 40-degree Dubai summer, you’ll know that was a bad, bad decision.
IF and EVER that tire does blow, you’ll be grateful you have a spare sitting in the boot.
That’s exactly what Life Insurance can be, in one way or another, to the Ultra High Net Worth Individual: IF and EVER you need it – there’s an untouchable, impenetrable, guaranteed pot of liquidity for you and your beneficiaries. Is that such a bad idea, especially when the purchase doesn’t affect your life or lifestyle in any way in the present moment?
If you’d like to explore large-value Life Insurance structures or get your current structures evaluated, reach out to me and let’s get a conversation on the calendar.
