Recently, I wrote an article on the C-Suite Dilemma. It piqued the interest of some high-flying executives in my network and led to a few interesting conversations.
The gist of my article was ‘Make hay while the sun shines.’ Get all the right plans and policies in place while you’ve got a steady income inflow.
The natural follow-up response to this is: ‘Agreed, but why do I need Life Insurance when I’m well-invested?’
Great question. I’ve got a two-word answer for you but allow me to lay out the big picture first.
A Day In the Life
A typical Fortune 500 or similar company’s C-suite executive leads a very busy life. They often work six days a week and will be plugged into email around the clock, weekends, time off and graduation ceremonies included.
Their jobs are high pressure, high-stake, and highly compensated. In addition to hefty pay cheques, they have a myriad of perks and benefits with large incentives for the performance and profitability of the company.
This also means that they are at the beck and call of their companies. These executives don’t work a nine-to-five and switch off for the evening. The CEO of an airline, for instance, will have people and departments calling and emailing him from all over the world – often with a crisis that needs attention.
Downtime with the kids is likely dotted with a quick email here, a phone call over there, and that’s on the rare weekend the CEO wasn’t being jetted off for a big Monday morning meeting halfway across the world. In short, the default mode is ‘Always On’ for these executives.
In return for this always-on dedication to the job, C-suite executives take home huge pay packages. As a part of these packages is usually a Group Medical Insurance plan and Group Life Insurance plan. These aren’t small policies either.
The best I’ve seen so far is about US$ 2 million of Life Cover, and I’m sure some companies offer even larger-value plans.
But here’s the thing about Group Life Insurance policies: This product is owned by the company, not the individual. The payout from this policy is made to the company and then gets disbursed to the dependents of the executive in the event of death or critical illness.
In a country like the UAE, the law stipulates that certain probates and mandates need to be secured before the proceeds can be passed on to the next of kin. This may also have to do with the fact that the proceeds get paid out to the payroll account. The probates are needed on that account.
In other words: It can take several months before the family sees the proceeds of a Group Life Insurance policy.
In addition to Group Life Insurance, high-income executives may also have generous end-of-service packages and pension plans in place, all of which secure their ties to the organization and make it lucrative to stay in these jobs long-term.
The proceeds of all of these plans, however, are also subject to these probates and mandates. If Sharia law processes are involved, this money won’t make its way to you anytime soon. It has to go through the entire system before you or your loved ones are rightfully declared the beneficiaries of those funds. And this is assuming there is no outstanding debt.
So, back to our question: ‘Why does a well-invested, asset-rich high-income executive need Life Insurance?’
Two words: Instant Liquidity
In most cases, high-income executives have investment portfolios that include property, stocks and bonds, and other such asset classes that are relatively less liquid compared to the cash payout of a Life Insurance policy.
Life Insurance policy payouts are ‘incontestable.’ Nobody can contest or stop these proceeds from being paid out to the named beneficiaries.
In the case of a Group Life Insurance policy, the named beneficiary is your organization and not your loved ones, creating the delay in forwarding those funds through to your family.
Another two words: Inconvenient Assets
Another good reason for procuring a Life Insurance policy is that your solid assets and investment portfolio might not be something your loved ones know how to manage.
Depending on what kind of asset it is that you are passing down, they might end up ‘stuck’ with it rather than benefit from the liquidity or income created from it.
This also applies to assets like watches, art collections, property in jurisdictions your loved ones don’t live, stocks and shares, and more.
The question is: Do your heirs know how to manage these assets? And if they don’t, what are the chances of them mismanaging them and losing out on the wealth you intended to leave behind? This is not an uncommon story.
My approach to my personal estate planning goes something like this: My family is instructed to turn first to Life Insurance proceeds, in the event something happens to me.
Only after that should they look at the rest of our assets and liquidate them when the time is right. The Life Insurance proceeds would also provide liquidity to cover inheritance taxes on property or other assets.
To conclude, I’m going to reiterate that two-word answer: Instant Liquidity.
Life Insurance proceeds give your loved ones options. With the right amount of cover in place, the proceeds of your independently secured policy can become the much-needed lifeboat when you need it most.