Protection is just as important for high net worth individuals as it is for those who rely heavily on their income, experts have said.
According to research firm Wealth-X, the UK has about 900,000 millionaires — the fifth largest number per country in the world — and advisers and providers have been urged to view such individuals as valuable clients for protection.
Vitality explained traditional needs for protection, such as mortgage debt, dependents and a pay rise, were as important to HNWs as wealth planning and protection for investment strategies and businesses.
Vitality stated their high net worth customers often had large monthly outgoings — such as school fees and multiple mortgages — and the retention of their current standard of living was of high importance to them.
Rob May, director at life insurance broker Risk Assured, said income protection was very important for this type of client especially where the outgoings came primarily from the breadwinner’s income.
He said: “Many HNW individuals are asset rich, with the main source of liquidity perhaps coming from a high income.
“For that purpose, income protection is very important for those on a high income. If something happened to the main person who brings in income, the family can be left in a sticky situation if all the other assets are illiquid.”
Mr May said this was especially important for those in their 30s or 40s who were still building up wealth so didn’t have big assets but had a big income.
In terms of IHT planning, a life insurance lump sum payout can mitigate an entire tax levy and leave some money available for funeral and probate costs, said Alan Lakey, director at Highclere Financial.
He said: “Imagine somebody whose worth at death was valued at £3m. The tax would probably be about just over £1m.
“If the client is advised to take out a £1,200,000 life insurance policy — written in a trust to his beneficiaries — then although the taxman would still demand the £1m in IHT the insurance plan, which falls outside the estate as it is in a trust, pays out £1.2m, sufficient to pay the tax and also meet other costs.”
Mr May thought protection was the most simple way to deal with IHT, stating that every other “weird and wacky” way involved some level of complexity, and that protection was also the most “cost efficient”.
Vitality noted many HNW customers also opted for business protection to protect their ‘key person’ as business revenues were often higher than an individual’s wealth.
Earlier this month advisers were urged to speak to their entrepreneurial clients about business protection when research showed one in four small to medium sized businesses would have to immediately close if a ‘key person’ died or became critically ill.
Mr Lakey agreed that as many HNWs operated limited companies they often had a need for key person or directors insurance, adding that those who were self-employed needed the same protection as their less well off counterparts.
He added: “Many people take the view that because somebody is HNW they do not have any need for protection — but any rational thinking destroys that view.
“I find that it is harder to generate interest from the HNW, but once they ‘get it’ they are more willing to put plans in place as cost tends not to be a major issue.”
imogen.tew@ft.com
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