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by Marit Haman and Tony Rajkowski

Life insurance is key to a solid financial plan for managing your wealth. While many people associate life insurance with providing income replacement for dependents, its benefits extend far beyond that, particularly for high-net-worth individuals.

But despite this invaluable protection, life insurance adoption rates remain low and have decreased in recent years¹. Many people shy away due to misconceptions about the product itself and the process to buy coverage. Let’s debunk a few of those misconceptions and take a closer look at everything life insurance can offer.

Debunking common life insurance misconceptions

“Life insurance is only needed to pay off debt.”

While life insurance can be used to pay off debt that would be transferred to a spouse or next of kin, it can also do so much more. Successful individuals use life insurance as a source of retirement income and another avenue for loan funding. It can also be used to support estate planning, business succession planning and more.

“Life insurance is expensive.”

Most insurance premiums have increased tremendously in the last few years, but life insurance has remained much more affordable than many consumers think². As people live longer and healthier lives, and more competition enters the markets³, the cost of coverage has dropped considerably in recent years⁴. Insurance companies have also broadened coverage regarding challenging health histories in recent years.

“Getting life insurance is an ordeal.”

A growing number of companies are moving to accelerated underwriting and even instant decisions, so coverage of up to $3 to $4 million can now be secured in days instead of months.

“I have no need for life insurance.”

Almost everyone has some sort of need for life insurance, whether it’s a simple term policy or a more complex, permanent solution. In the executive and high-wage-earning space, life insurance is one of the most common tools for asset protection and wealth accumulation. Life insurance can make a premature death so much more manageable for surviving family members and business partners, and it needs to be a part of any financial planning discussion.

Life insurance has many benefits

Beyond simply replacing income, life insurance can play a key role in these areas:

Estate planning

Life insurance can help offset estate taxes, ensuring heirs receive their intended inheritance without the need to liquidate assets. A policy can also provide liquidity in an estate that primarily consists of illiquid assets, such as real estate, art or businesses.

Wealth preservation and transfer

A life insurance policy ensures a smooth transfer of wealth to future generations. Permanent life insurance (such as whole life or universal life policies) can also build cash value, which can be accessed if needed.

Charitable giving

Wealthy individuals often use life insurance to fund charitable donations, ensuring their philanthropic goals are met after they pass.

Business continuity

For business owners, life insurance can fund buy-sell agreements or provide capital to keep the business running smoothly after an owner’s death.

Tax optimization

Life insurance proceeds are generally income tax free, which can be a strategic tool for transferring wealth. Some policies offer tax-deferred growth on cash value as well.

Supplemental investing

Certain life insurance policies can act as an additional investment vehicle, offering competitive returns and diversification.

Legacy planning

Life insurance ensures that there’s a financial legacy in place, even if other assets are tied up, underperform, or are otherwise inaccessible.

Customization is key

Individuals with a high net worth often have unique needs that require life insurance strategies that are customized to align with their broader financial goals. Work with an experienced financial advisor and estate planner to ensure your policy is structured correctly, takes full advantage of the benefits listed above, and complies with tax and legal regulations.