Life Insurance for High Net-Worth Individuals (HNIs)

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An Overview

A life insurance is sold with the sales pitch of providing financial security to dependents after death. However, the same pitch may not work for High Net Worth Individuals (HNIs) because they leave enough for dependents, and their financial future is secured. Then, why should HNIs consider insurance as a prudent decision?

Insurance for High Net Worth Individuals (HNIs) : Key Considerations

Consider insurance as a tool of Estate Planning. Keep term insurance in your portfolio until age 75. Buy term insurance at a young age so that the premium is low for the entire duration. Always buy high sum assured with two riders: Accidental Disability and Critical illness. An HNI is an income-generating asset and should be insured like any other assets of the family.
HNIs, if they are Directors in a Private Limited Firm, should buy Keyman Insurance. In case of death, the nominee would receive the amount from the firm as an ex gratia amount, which is tax-free.
HNIs, if they are Partners in a Partnership firm, should buy term insurance under Partnership insurance. This helps in the continuity of the business because Partnership Firms are able to pay off the share to the family.
As HNIs may have legal disputes with authorities due to commercial reasons, taxation, or civil matters, they should buy Term Insurance under the Married Women Property Act. This will ensure that the claim amount cannot be attached if the Government wants to attach it. Many HNIs have business loans, and the loan liability falls on the family. Loan providers can attach the property, but Term Insurance under MWPA cannot be attached.
If an HNI is the Karta or Coparcener of HUF, they can enhance the cover by purchasing it through HUF.
There is one saving-linked product of Life Insurance that can be bought, called Whole Life Insurance. This is a unique system of creating a tax-free property. For example, all HNIs want to leave property in the name of dependents, and they buy houses in the name of each child. However, such property requires maintenance and management. Instead of property, HNIs should buy multiple whole life insurances nominating their loved ones. Whole life covers till age 100, and in case of death, a tax-free claim is given to the nominee. This also provides a cushion for old age care because children know that they can change the nominee if the children do not take care.

Also Read: NRIs Buying Life Insurance in India: Points to Consider