Redefining life insurance for high-wealth clients

David was raised by his paternal grandmother near Birmingham in the English Midlands. She left him the equivalent of several million dollars when he was in his late twenties and by then a U.S. resident. Over time, he turned that inheritance into more than $200 million through smart investing and his success in the medical equipment field.

But David always regretted the bite that estate taxes and other costs had taken from his grandmother’s estate — an estate he believed was a monument to her hard work and prudence. He also remembered how she had struggled to balance her desire to give her only grandson a head start in life with month-to-month money worries brought about by that very preoccupation.

David was a U.S. resident by this time. He was determined to shelter his own three children from the loss and bother he had experienced as the heir to his grandmother’s estate while remaining free to enjoy his wealth without undue worry about the future.

Like many ultra-high net worth people, David wanted a solution that would prevent a significant portion of his estate from being depleted by taxes. And although he could see the problem, clear answers seemed out of grasp — not just to him but also to the financial advisors he consulted over the years.

Until, that is, David met with an advisor who understood how insurance can provide powerful solutions in cases just like his.

A whole new world

Top financial advisors and registered investment advisors are reassessing their approach to insurance. They see insurance not as a product to be sold but as an enhanced planning tool to be customized to the unique needs of their clients.

These advisors understand that many UHNW clients view insurance with skepticism, largely because it seems so complicated — and that view is not too far off the mark. The task of predicting and pricing specific risk scenarios in various time frames requires formulas, algorithms and tables that seem daunting to the uninitiated.

Additionally, the growing roster of insurance products, the numerous carriers out there, and the abundance of agents and brokers showcasing various strategies can leave HNW and UHNW individuals feeling overwhelmed and uncertain about the best courses of action.

Underwriting is another source of complexity. The precise verification of client details such as age, health and other relevant circumstances determines optimal insurance solutions. For some clients, the sheer number of inputs, variables and caveats in the underwriting process makes it seem tenuous and untrustworthy.

Despite these intricacies, however, holistic wealth advisors are starting to see value in educating their clients about the benefits of aligning reliable and transparent insurance solutions with their clients’ broader financial pictures and long-term goals.

Deep discovery

The advisor David wound up with is a case in point. Well-versed in the nuance of insurance planning for UHNW individuals and family offices, she saw that David’s U.K. background added a layer of complexity to his financial situation. While David’s initial response to the U.S. insurance market was one of reluctance and distrust, the advisor took the time to understand his desire to shelter his legacy and live free from day-to-day balance sheet concerns while probing his background, circumstances and objectives.

Through this deep discovery process, David and his advisor decided that an insurance policy held in trust could effectively set aside more than enough liquidity for his children — and his own long-term peace of mind.

But making the most of insurance for the wealthiest clients calls for collaboration between wealth advisors and independent UHNW insurance specialists. Optimally, these experts work with clients to weigh not just specific insurance products but also their impacts on the client’s financial picture and goals.

The UHNW difference

What delineates an UHNW life insurance advisor? Like all things for the ultrarich: the devil is in the details, and principally their client experience. With larger amounts at stake, both for the client and the carrier, advisors who cater to this end of the market don’t always have the ability to change the product. They do, however, have the power to change how products are delivered, designed and incorporated into the balance sheet management of these families. Understanding the structuring, tax, health and economic implications of life insurance offerings creates a potent planning outcome.

It’s rarefied air among the thousands of licensed agents across the country. To achieve the scale required of these families, the UHNW segment demands teams of underwriting specialists to manage medical affairs and in-house product experts to canvas the carriers and reinsurance market. It is a specialty business hidden within a highly commoditized space — much like the private jets flying in and out of our airports. We can’t change flight itself, but we can certainly revolutionize how it is delivered and what outcomes can be achieved.

Why are these UHNW families going through an insurance process if they are already wildly wealthy? Predictability, planning and taxes. Maintaining extreme wealth is surprisingly hard. Bad investments, changing trends and taxation are continually eroding family fortunes.

Life insurance is one of the few investments that is both long term and tax advantaged. For these families, the risk/return exercise is worth allocating capital to complement their other riskier activities and control wealth within the family balance sheet. For the most part, families are using their life insurance payouts to pay estate taxes due at death of their loved ones — removing complexity and hard choices for the transfer of wealth. Done right, the allocation of funds to life insurance is a tool for anxiety reduction in addition to wealth creation (and defense).

By recognizing the complexity of the insurance landscape, and the overriding need to align insurance choices with the unique circumstances of HNW and UHNW clients, wealth managers can deliver greater value and empower their clients to confidently navigate risk management as the need arises.

Through collaboration, expertise and a client-centric approach, wealth managers are transforming the perception of insurance, positioning it as a powerful tool within the broader framework of comprehensive financial planning for high-wealth clients and their families.

Matt Celenza is CEO and co-founder at Boulevard Insurance Strategies, and founder and managing partner at Boulevard Family Wealth. He may be contacted at [email protected].