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July 16, 2024

Reimagining Life Insurance

Using life insurance as a strategic multi-generational legacy planning tool for High Net Worth (HNW) and Ultra High Net Worth (UHNW) individuals

The traditional use of life insurance

Life insurance comes with tangible benefits. 55% of respondents in a 2021 Statista survey said they were purchasing life insurance because they had dependents who rely on them financially. They buy life insurance for protection against income loss, allowing for continuity to meet dependents’ needs, for daily living, for education, or to pay off debts or mortgages. Others do so for business continuity, to supplement retirement income and general peace of mind.  

It is interesting to note the insurance market in Singapore is projected to grow 6.4% from 2024 to 2028, reaching US$58.8 billion in 2028* . And any deviation from this projected growth is likely to be on the upside, as more become financially aware and educated to utilise and maximise the benefits of life insurance.

The strategic use of life insurance by HNW and UHNW Individuals

It is often said that the only certainty in life is death and taxes.  Life insurance can be a strategic tool to use, not for the end of life, but for the start of a legacy. 

For the HNW or UHNW, life insurance provides benefits beyond merely for income protection, to support dependents, or pay off debts.  We also see more individuals and families take to a globetrotting lifestyle, with careers and business opportunities that extend beyond their home country. An increase in holding of assets or investments across different countries and possibility of multiple residences across different jurisdictions adds complexity to legacy, wealth and tax planning needs.

As such, life insurance can serve to play a strategic role:

  • To allocate businesses and assets as desired, e.g. at times, it may be challenging to allocate properties (or ownership of businesses) as each asset may not be equal.  Beneficiaries who do not inherit the real estate (or business) may be gifted the payout(s) from life insurance, so that they are given what was intended for them;   
  • To maximize wealth:

o   Life insurance may be used as an asset in an investment portfolio, and/or viewed as an investment, with commensurate risk-return expectations, for diversification in an investment portfolio to hedge against market risk;

o   Life insurance may be used as a source of “retirement income” to add to the wealth of an individual.  

o   Life insurance may be used as an asset for leverage, as needed by the individual or family.    

  • To secure financial legacy:  

o   Life insurance may be used in succession and legacy planning, together with wills, trusts, and other structures, to include beneficiaries across generations, to ensure the longevity of a lasting legacy.

  • To secure legacy with greater philanthropic impact:

o   Life insurance may be used to structure philanthropic giving.

  • To be used in a tax plan and ease tax burdens:

o   In countries where there is estate tax, the benefits from life insurance may be used to pay for estate taxes on real estate or to cover immediate expenses, thus providing liquidity or easing tax burdens, in case other assets are illiquid. This is increasingly becoming more mainstream as investors seek more opportunities in different countries for diversification and investment opportunities.

Not all types of life insurance are created equal

There are two main types of life insurance: permanent life insurance and term life insurance.

Permanent life insurance covers the period of one’s whole life, and may include, amongst others, the following:

  • Whole life insurance, which come with a fixed death benefit, and fixed premium(s);
  • Universal life insurance, which is similar to whole life insurance but with premiums not fixed; or
  • Indexed universal life insurance (IUL), which lets the policyholder decide how much cash value to assign to an equity-indexed account and to a fixed-rate account, if available. Like universal life, IULs allow for flexible premiums and possibly a flexible death benefit.

Permanent life insurance has a cash value component; hence is considered an asset because funds from the policy may be withdrawn even while the insured person is still alive, and money, or investments, may grow in an account that is accessible for withdrawal.

Term life insurance, on the other hand, results in a payment to the beneficiaries in the event of the insured person’s death and is thus not considered an asset. It is typically less expensive and valid only for a fixed number of years.    

Depending on a person’s objectives, the choice of type of insurance and specific solution(s) that come with each type of insurance, are important to determine how they can be used strategically for the person’s comprehensive wealth or estate plan. A thorough discussion will need to take place with a Financial Advisory Representative to assess each person’s circumstances to be able to derive a solution that is suitable. Different types of life insurance may suit different persons and circumstances. 

What to consider when choosing a life insurance provider

A single factor that stands out is the financial strength of the insurer, which impacts its stability, because a stable insurer will be in business decades down the road when it is time to payout the benefits under the policy. Measures of this include the insurer’s credit rating, its asset liability capabilities, proactive and prudent risk management approach, and being accountable for sustainability. 

Other factors to consider are whether the insurer has a product with features that suit one’s needs; whether the pricing offered is fair versus the value of offering.  When seeing an insurer, one must be comfortable with all considerations, bearing in mind one’s own circumstances, and obtain relevant independent advice, as one deems fit.      

In summary, life insurance has evolved, from not only being an income protection tool to help a family through adverse situations, to one that is used strategically by HNW and UHNW individuals in wealth planning and to enhance philanthropy giving, leaving a legacy beyond the current generation. 

*Source: Statista

This article is meant for general information purposes and not tailored to any particular person. Where it also contains the views of the persons named therein, these may not represent views of the general market or industry. This article contains information and views that are true and correct as at the time it is published. Sun Life has no obligation to update you of any information, view or thought that may subsequently change, and Sun Life is not responsible for any loss or detriment that results from sole reliance on the contents of this report.  This article is not meant to be, and does not amount to, any solicitation or promotion of any investment or products or services, or any advice to purchase any insurance product. Before entering into any investment, buying any insurance policy or other product, or availing any services, you should take independent legal, tax, financial or other advice as you may deem fit, considering your own circumstances.

 

Sun Life Assurance Company of Canada is an insurance company federally incorporated in Canada, with OSFI Institution Code F380 and its registered office at 1 York Street, Toronto, Ontario, Canada M5J 0B6. It is regulated by Office of the Superintendent of Financial Institutions, Canada. Sun Life Assurance Company of Canada Singapore Branch (UEN T19FC0132B) is registered with the Accounting and Corporate Regulatory Authority of Singapore as a foreign company, with its registered office at One Raffles Quay, #10-03 North Tower, Singapore 048583. It is licensed and regulated by the Monetary Authority of Singapore. Where Sun Life Assurance Company of Canada Singapore Branch is referred to as “Sun Life Singapore”, this is strictly for marketing and branding purposes only, and no legal significance is expressed or implied. Sun Life Assurance Company of Canada is a member of the Sun Life group of companies. The Sun Life group of companies operates under the “Sun Life” name. Sun Life Financial Inc., the publicly traded holding company for the Sun Life group of companies, is not a product offering company and is not the guarantor of the obligations of its subsidiaries.

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