Risk protection is as important as your client’s investment portfolio

By Clyde Parsons, chief innovations officer, BrightRock

Financial planning for high net-worth individuals

When it comes to financial planning for high net-worth individuals, the focus is often on wealth creation and protection through investment strategies. However, if your high net-worth clients have made building financial wealth a priority, they also need adequate risk protection to keep pace with their growing asset base and changing lifestyle. In this article, we outline some key points to take into consideration when meeting with your wealthy clients to assess their life insurance coverage.

Your clients might believe that having built significant wealth, their dependants are financially secure. However, it’s important to consider that families may have limited access to funds after the death of a wealthy spouse or parent if their money is tied up in fixed assets, investments, and businesses. An international survey conducted in 2021 found that 58% of wealthy families only reviewed their succession and legacy planning on an ad-hoc basis, with another 22% doing so every five years or more.

Life insurance can provide dependants with access to funds to cover any outstanding debts and regular living expenses, so they aren’t forced to liquidate assets to fund day-to-day living expenses. Here are some basic, but vital risk protection tips to consider when assisting your clients with their financial plans:

• Ensure that your client’s financial plan addresses the actual expenses funded by their income, ensuring that their life cover caters appropriately for each of these different needs – this includes everything from the cost of educating and caring for their children to their medical aid contributions. Ensuring that the term of the cover needed matches the term of the debt or financial obligation will make the cover more affordable because it’s appropriately priced. A smart financial plan will protect the client’s asset base in the event of an unforeseen illness or injury. Say, for example, a client loses the use of their legs in a vehicle accident and needs to make adjustments to their home so that they can move around more easily. Without critical illness cover to pay out for events like this, they would be forced to cash in investments that they had set aside for specific purposes, such as their child’s education or their own retirement. Insurance prevents these investments being depleted due to a serious health condition or injury. Some innovative insurers like BrightRock also provide critical illness cover where the claim payment can be taken as a lump-sum followed by a series of monthly payments for conditions where it’s understood that the client will take a while to recover and will need a bit more money.

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• Carefully consider the various pay-out options for this cover. Generally, clients are forced by the constraints of traditional life products to choose between a lump-sum or a recurring benefit at policy inception, even though one can only really know which option will best suit their needs when they claim. These options have various pros and cons, so it’s important to make an informed choice. BrightRock offers the ability for clients to choose the best pay-out option at claims stage – whether a lump-sum or income payment, or even a combination of the two. This means your client and their beneficiaries can enjoy the best of both worlds when it comes to protecting their income after death or disability;
• Your client may have a significant estate duty liability on death, given their large asset base and the value of their estate. Only the first R3,5 million of an estate’s value is exempt from estate duty – for large estates, this tax bill can result in a significant reduction in value. However, the Estate Duty Act provides for a deduction where assets are left to a spouse, and the estate duty payment can be deferred until the second of the spousal couple dies. Your client’s life insurance policy can offer financial protection against this estate duty liability by including last death insurance cover that specifically protects the last surviving spouse and provides for this payment on their death.
• Lastly, protect your client’s future insurability. While their financial needs are sure to change over time as their lifestyle and net asset position change, it can be difficult to get more life insurance cover later in life because of their age or changes in their health. BrightRock’s extra cover buy-up option gives qualifying clients the option to access more cover later on with no medical tests – a feature that’s built into all standard policies at no additional cost.