Why Term Life Insurance for High-Net-Worth People Is Essential

If you have a net worth of over $1 million, you might think that your family and assets are protected for the future. Your assets, though, don't eliminate the need for life insurance. A solid life insurance policy not only provides an extra level of protection for your loved ones, but can also be used to maximize your investment portfolio and as protection against estate taxes.

If you have a high net worth, a life insurance policy should be a part of your overall financial plan and estate planning. Here's a look at why high-net-worth individuals need life insurance, how much coverage they need and where to find the right policy. 

Why high-net-worth individuals need life insurance

There's no such thing as too much protection. Even with a comfortable net worth, you can experience financial setbacks. Purchasing a life insurance policy can provide an extra level of protection for your dependents and loved ones. If needed, a life insurance payout could cover funeral expenses, unpaid medical bills, personal debts and other outstanding expenses.

Tax benefits from life insurance

Another reason to consider life insurance is for a tax benefit. A life insurance policy could help  beneficiaries cover any estate taxes upon death. This won't affect middle income earners, but for individuals who earn a high income, estate taxes could be an issue.

If the value of your assets exceeds a specific threshold, your family would be on the hook to pay federal estate taxes on your assets after your passing. The IRS set the federal threshold in 2022 at $12.06 million, so your family would only pay estate taxes if your assets exceeded that amount.

Depending on your assets' value, your surviving family could pay a tax rate as high as 40% on assets over the threshold. That doesn't include estate taxes to be paid to the state. State estate taxes and exemptions vary depending on where you reside. By purchasing life insurance, you can ensure that benficiaries will receive most of their inheritance and not have to pay a large sum in taxes.

Business advantages

If you own a business, a life insurance policy can protect your assets through a buy/sell agreement in case of sudden death. It will also protect your family if the business has any outstanding debt.

A life insurance policy can become an additional income stream in some cases. You can use a whole life insurance policy to earn tax-free dividends. There's no guarantee that you'll earn dividends, as it will depend on how your policy is structured. Or you could borrow against the policy's cash value in some cases, to cover more significant expenses during your life.

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How much term life insurance do high-net-worth individuals need

Choosing an insurance policy type and coverage amount depends on your specific needs. Even as a high-net-worth individual, you don't want to pay too much or carry more coverage than you need.

Options include whole life insurance and term life insurance. Whole life insurance, also called permanent life insurance, provides death benefit coverage for the life of the insured individual.

Term life insurance provides death benefits for a stated period or term. Because it only provides coverage for a period, term life insurance is typically the less expensive option.

Choose a life insurance policy that adequately covers your debts and any future expenses for your family. A good rule of thumb is to purchase a life insurance policy that’s at least 10-times your income, rounded up to the nearest $500,000.

Although there's no cash value with term life insurance, it does protect your family if you die suddenly. It can also be used to protect your family during a specific period, such as child-rearing years, or while paying off debts.

Related: How to Use Life Insurance to Repay Student Loans

Take the time to determine your needs before choosing a policy that’s right for your family.

Term life insurance cost for high-net-worth individuals

Term life rates vary by the insurance carrier. Other factors, such as age, gender, and quality of health will determine your rate. The term length and policy value also affect how much you'll pay for your life insurance’s monthly premium.

Below are monthly policy cost estimates for a 20-year term policy of $2 million and $4 million for someone in excellent health living in Phoenix, Arizona. We've also categorized the insurance coverage by age and gender to give you an idea of probable insurance costs.

Policyholder profile	$2 million policy	$4 million policy
25-year-old female	$38 per month	$75 per month
25-year-old male	$54 per month	$102 per month
35-year-old female	$50 per month	$102 per month
35-year-old male	$59 per month	$112 per month

If you’d like a free life insurance quote for your policy scenario, use the SLP insurance quote tool.

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Where to find term life insurance options for high-net-worth individuals

The easiest way to find life insurance options is to shop around online. Don't rely on work provided coverage alone to protect your family.

Online insurance providers typically allow you to check rates before signing up for coverage. You can adjust the coverage amount, terms and other factors to find current rates based on your needs.

When choosing a provider, look at every detail, especially whether you can renew or extend your coverage at a later date. Many providers require you to have a medical exam to receive coverage. Also check for any additional requirements needed to qualify for their policy.

FAQs: Life insurance for high-net-worth earners

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Determine your needs and then shop around to find a life insurance policy that will protect your family, investments and assets. Use our free life insurance quote process to find the best premium based on coverage, term length, and other factors that fit your lifestyle.