One of the first purchases a person makes which indicates a sense of adulthood is life insurance.
While unmarried people and those without children do not have immediate use for life insurance, those people who have spouses and children consider the purchase of life insurance as a hedge bet against a fatality which could affect the family forever.
Although there are insurance policies that can be purchased against specific occurrences (think hurricane or flood insurance, for example) the most prevalent form of insurance is life insurance. A life insurance policy provides for a payout if or when the insured passes away. Term insurance covers the possibility of an untimely death for a period of years, while whole life insurance provides a payoff in the inevitability of death.
Life insurance is costly, especially for those Americans who do not get to buy insurance at a discounted rate through their employer. But it is a popular investment option, one that used to be considered essential and today remains a popular purchase decision for affluent investors.
However, it is not a purchase made by all affluent investors, as determined in Spectrem’s annual examination of investors and their portfolios. Asset Allocation, Portfolios and Primary Providers looks at the specifics of the average affluent investor in three different wealth segments, and insurance ownership is one of the many topics included in the study.
Spectrem’s study was segmented into three wealth groups, including Ultra High Net Worth investors with a net worth between $5 million and $25 million. These investors are an interesting segment to study because they can both afford life insurance more easily and are yet likely to have other investments that can protect their families from a sudden death.
According to Asset Allocation, only 52 percent of UHNW investors own life insurance. By comparison, 51 percent of Millionaires with a net worth between $1 million and $5 million own life insurance, and 46 percent of Mass Affluent investors with a net worth under $1 million do so.
It is revealing that the percentages neither climb nor fall much depending on wealth. Although investors sometimes do not look at insurance as an investment, advisors would be wise to examine an investor’s insurance holdings to see if there needs to be an adjustment.
Another, less popular form of insurance is long-term care insurance, which does not pay out upon death. Instead, it pays out if someone becomes incapacitated by age or other occurrence and does not die. It provides for the financial liabilities related to care in aligned nursing home or care facilities. The policies are often very expensive, and they are detailed in terms of just how much care (financial reimbursement) they will provide.
Among UHNW Investors, only 30 percent own long-term care insurance. Approximately half of the investors who do not own long-term care insurance claim to be saving for the possible need of long-term care by putting funds into other savings vehicles.
Top Takeaways for Advisors
Life insurance is a good idea unless an investor is completely alone in the world, and few of those types of investors exist. If anyone is dependent upon the investor, whether it be child or spouse, that investor’s family could benefit from a life insurance policy. Advisors cannot harm their relationship with an investor by suggesting the investor get on board with life insurance, or even by suggesting the investor needs to buy more life insurance, depending on the policy’s value.
©2018 Spectrem Group