Life Insurance for High-Net-Worth Individuals: Planning Beyond Basic Coverage

Life Insurance for High-Net-Worth Individuals: Planning Beyond Basic Coverage

By Elizabeth Kusmider, CFP®

For most people, life insurance is primarily an income replacement tool. You buy it to make sure your family can maintain their financial position if you die while they still depend on your income. For high-net-worth individuals, income replacement may already be addressed by existing assets, which means the planning conversation shifts to different questions entirely.

I am Elizabeth Kusmider, CFP® and independent life insurance broker. I work with high-net-worth clients on planning strategies that go well beyond a death benefit. Here is how life insurance functions differently at higher wealth levels and what planning approaches are most relevant.

Why High-Net-Worth Planning Is Different

At higher wealth levels, the primary life insurance planning questions are not about whether the family can pay the bills. They are about how to transfer wealth efficiently, how to provide liquidity for obligations that arise at death, and how to use insurance as a planning tool within a broader financial and estate strategy.

The clients I work with at this wealth level typically have: a taxable estate, illiquid assets (a business, real estate, private investments), family members with different levels of involvement in those assets, and a planning team that includes an estate attorney, a CPA, and a wealth manager. My role is to make sure the insurance piece fits what that team is building.

Estate Tax Liquidity

Federal estate taxes are substantial and due in cash. Some states, like Illinois, add state estate taxes with a lower exemption threshold, around $4 million. For a high-net-worth individual whose estate is heavily weighted toward illiquid assets, the tax bill at death can require asset sales that are strategically and financially disadvantageous.

A large permanent life insurance policy, held in an irrevocable life insurance trust, provides the cash to pay those taxes without forcing sales. The death benefit arrives at the right moment, outside the taxable estate, and can be directed precisely where it is needed.

For clients in states with estate taxes specifically, this strategy is relevant at estate sizes that many business owners underestimate. The combination of a business interest, real estate, and retirement accounts can push an estate above the Illinois threshold even when the individual does not think of themselves as a high-net-worth estate planning candidate.

Wealth Transfer Strategies

Spousal Lifetime Access Trust (SLAT) with Life Insurance

A SLAT is an irrevocable trust that allows a spouse to make gifts to a trust that benefits the other spouse during their lifetime, removing the gifted assets from the taxable estate. When combined with life insurance inside the trust, this strategy can transfer significant wealth efficiently while maintaining access to trust assets through the beneficiary spouse.

Charitable Planning

High-net-worth individuals with charitable goals often use life insurance in combination with charitable vehicles. A common approach: donate appreciated assets to a charitable lead annuity trust or charitable remainder trust, use the income tax deduction or income stream to fund a life insurance policy that replaces the donated asset for heirs. The charity benefits, the estate is reduced, and the heirs are made whole.

Generation-Skipping Strategies

Life insurance can be used to fund generation-skipping transfers, moving wealth to grandchildren or future generations in a tax-efficient way. Combined with a generation-skipping trust and properly structured to avoid inclusion in the taxable estate, a large permanent policy can create a significant legacy across multiple generations.

Business Owner Considerations

For high-net-worth business owners, the personal estate and the business estate are deeply intertwined. The business is often the largest asset and simultaneously the source of the liquidity problem at death. Strategies that address both the personal estate and the business succession plan simultaneously are more efficient than handling them separately.

This is where coordination between the estate attorney, the business attorney, the wealth manager, and the insurance specialist become essential. A plan that is designed in silos (legal documents in one place, insurance in another, investments in a third) often has gaps that only become apparent when it is too late to address them.

Policy Design at High Coverage Amounts

High-net-worth planning often involves large coverage amounts, sometimes in the tens of millions of dollars. At this level, carrier financial strength is a meaningful consideration. Permanent policies are long-duration contracts, and the carrier needs to be able to honor them decades from now.

I work with carriers that carry strong financial strength ratings from AM Best and other rating agencies, and I review those ratings regularly. For very large amounts, layering coverage across multiple carriers rather than concentrating a large death benefit with one company is worth evaluating.

If you are a high-net-worth individual who has not had a comprehensive insurance review in the context of your estate plan, that conversation is worth having.

Elizabeth works closely with wealth managers and estate attorneys to bring insurance planning into broader client conversations. We are here to help make that process simple, not stressful. To schedule a planning session or discuss a client situation, reach out to Elizabeth Kusmider, CFP® at info@kusmiderconsulting.com.