In simple words, Life Insurance is essentially a contract that guarantees that a certain sum of money is paid to the beneficiaries upon the death of the insured. The consideration for the said contract is called the premium that the policyholder pays. For a successful life insurance contract, the insured must disclose all the relevant information, especially regarding health and risk-incurring activities. It acts as a security for the beneficiaries who may be dependent on the insured.
While life insurance is becoming quite a popular form of insurance policy, it is especially very popular among the rich. The peculiar circumstances of the wealthy warrant enforcement of a reliable, expansive, and beneficial life insurance policy. Upon the insured’s death, the beneficiaries won’t be left in a lurch and subject to extreme financial distress. However, we will talk about this in greater detail below. Here is why the affluent should buy life insurance:
Protects the interest of the beneficiaries
Consider this: you are the primary earning individual of the family with a spouse and two young children. Your death will result in the distribution of the estate among the spouse and the children. But is that so simple? No, the matters of inheritance are generally complicated and not readily resolved. At least until those matters are settled, your family will have sufficient financial buoyancy to sustain themselves and undertake the settlement matters.
To balance out the inheritance or estate taxes
When the estate devolves among heirs, the cause of inheritance or estate taxes arises. And, mind you, the larger the estate, the greater the burden. Inheritance tax will be paid by those who inherit your estate, whereas the estate tax will be paid out of your assets. These two can become a large sum to deal with, especially when there are no readily available liquid assets to pay the taxes from. This may cause a delay and penalties to be levied. In such a case, the amount paid under the life insurance policy could be of great use and prevent the heirs from having to sell any of their inherited assets to discharge tax liability.
Tax-Free Benefits are there too
The rich take away the most significant share of the progressive tax structure. The more you have, the more taxes you pay. So, tax planning becomes a vital component in the overall financial management framework of the rich. The affluent know that life insurance proceeds are generally tax-free to the named beneficiaries. Knowing this, they purchase the more expensive policies that cover more considerable benefits to be delivered to their loved ones and balance out the money going out as inheritance or estate taxes.
Safeguards the interests of the business owners
A high-Net Worth Individual is quite likely to have business interests. This could mean that they have partners or co-owners of the business they deal with. Now, the death of a partner can lead to a messy affair that can be mitigated through life insurance. In the life insurance contract, the other partner can be named as a beneficiary who can use the money received to buy the share of the deceased partner. This is especially helpful when the other partner does not want to work with the surviving family members and wants to exercise complete control of the business. Life insurance proceeds can help resolve an otherwise ugly conflict and keep everyone happy.
Giving peace of mind
Life insurance gives you peace of mind. Death comes with an unquestionable finality. However, what it can potentially make uncertain is the future of those left behind. Unless a degree of financial security is provided to the family members, there are risks that can be understood from the discussion above. Thus, life insurance comes as a protective measure for family members and ensures a smooth transition in business matters.
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