How to tailor insurance to affluent clients

Regular folks worry about debts, mortgages and the ability of their dependants to generate income after they die. High-net-worth clients don’t have to.

However, their wealth brings its own set of problems, among them large tax bills and uncertain wealth transfer upon death. Even if your wealthy clients don’t like to talk about dying, you can reframe the conversation to be about legacy.

Talk to clients about these four ways to preserve a legacy using insurance:

1. Use permanent life insurance on a single or joint life basis to fund a tax liability

People with significant wealth do a lot of tax planning, much of which involves tax deferral. Taxes are usually paid upon death, when there is a deemed disposition of particular assets. The tax liability might occur when the policyholder dies, or when the spouse dies. Since life insurance proceeds are also payable on death, they provide liquidity to pay the taxes. That way, dependants of the HNW client won’t have to liquidate any assets to pay the CRA.

If your clients make use of the spousal rollover in their wills, their insurance should be on a last-to-die basis.

Learn more about this strategy here.

2. Use charitable life insurance to trigger a tax receipt

Charitable life insurance can fund a bequest and trigger a large charitable tax receipt when the client passes away. You can enact a life insurance policy that names a client’s charity of choice as beneficiary, so the insurance contract proceeds pay for the charitable bequest, instead of money from the client’s estate.

Learn more about this strategy here.

3. Insure children to ensure wealth transfer

If your client has grandchildren, life insurance can transfer wealth from one generation to the next on a tax-advantaged basis. Insuring children with grandchildren as the beneficiaries is a common way to transfer wealth efficiently and effectively through the generations.

To make sure the children aren’t stuck paying premiums after your client dies, design a life insurance plan that lets the client to pay premiums up to a certain date (his 70th birthday—presumably before he will pass away), or for a limited amount of time (the next ten years).

Or, have your client purchase an annuity lasting the entire length of the life insurance policy with payout amounts that cover the premiums.

Learn more about this strategy here.

4. Use life insurance for retirement planning

The tax-exempt accumulation of cash in a life insurance policy can function like an RRSP on steroids. When your client retires, he can access the funds through a collateral assignment of the policy to a lending institution for a tax-free loan to supplement retirement needs.