Article written by:
Erin Smith, MBA, JD
Director of Operations
The Targeted Strategies Group

Life insurance is a key aspect of any estate plan – especially for high net worth individuals and families. However, applying for life insurance can be an overwhelming experience. When taking care of this important part of your estate planning, it helps to know what is involved, and to have a knowledgeable team who can tailor life insurance products to fit your unique needs.

There are three key types of information that insurance companies need to know before they can offer someone the opportunity to purchase life insurance:

  1. health and lifestyle information;
  2. financial information; and
  3. the owner’s insurable interest in the insured.

The above are particularly crucial when a high net worth individual is applying for a large amount of insurance.

Health and Lifestyle Information

For insurers, life insurance is fundamentally about assessing an individual’s longevity and then pricing insurance products accordingly. The combination of the insured’s health, age, gender, and lifestyle determine the price of the insurance, so it is critical for the insurance company to assess a client’s health and lifestyle to determine pricing.

Insurance companies receive information about a client’s health through three methods:

  1. Health and Lifestyle Questionnaire – An interview is required about the insured’s health and lifestyle history (e.g. travel, sports, drinking/drugs).
  2. Paramedical Exam – Insurers require the client’s blood, urine, height, and weight. This information is taken by a medical professional who regularly conducts insurance medicals. The Targeted Strategies Group will work with the client to arrange this for a time and place that is convenient for the client (including, in the client’s home).
  3. Doctors’ Reports – These allow the insurance company to receive detailed information about a client’s medical history, and to check for any inconsistencies between the client’s self-reported information in the questionnaire, and the doctors’ reports. If there have been any tests recommended by a doctor that have not yet been completed, the insurer may require these to be completed prior to making an offer.

Financial Information

For high net worth individuals, large amounts of life insurance may be needed to respond to challenges of intergenerational transfer of wealth, business continuity and succession planning, to name a few. Applying for this level of insurance requires precise financial information for each prospective insured person. The precise information that is needed depends on two things:

  1. the insurance needs being applied for (supporting information for a personal need like estate tax liability insurance is different than the supporting information needed for a business need like buy-sell insurance); and
  2. the specific financial circumstances of the insured (e.g. employment status, size of their corporate structure, where the value is in their corporate structure).

Common items required by the insurer for high net worth individuals include:

  1. two years of tax returns (personal and corporate);
  2. two years of corporate financial statements,
  3. a corporate organizational chart;
  4. a statement of personal net worth; and
  5. amount of existing life insurance (if any).
    insurable interest

Insurable Interest

Many clients, particularly high net worth individuals, choose to have a corporation own their insurance rather than own it personally. From the insurer’s perspective, it is critical that the owner of the insurance (whether a corporation or an individual) have an insurable interest in the life insured. This means that the owner of the insurance must suffer financially upon the death of the insured. Oftentimes, the insurable interest of the owner is self-evident, but in more complicated structures, this needs to be carefully designed and clearly explained.

An Advisor’s Role

While the above three pieces of information can seem simple, they can become especially complex for high net worth individuals. As a result, it is important to have an insurance advisor who can work with you and your advisory team to gather the right information, guide you through the process, and negotiate the best terms from insurers.

The Targeted Strategies Group has a team of professionals, including CPAs, lawyers, and actuaries, who assess each of our client’s individual circumstances, build tailored solutions, and work to get our clients the optimal mix of life insurance, products, and pricing.

 

This article is published by The Targeted Strategies Group of companies (TTSG). TTSG includes Targeted Strategies Limited, InterGen Financial Solutions Inc., and TTSG The Veritas Edge Family Office Support Ltd. The information, opinions, and recommendations presented in this article are for general information purposes only and do not constitute advice with respect to investment, financial, legal, insurance, tax or any other matters. This article should not be considered a solicitation for the sale of life insurance. You should consult with a trusted life insurance advisor about your specific insurance needs. TTSG makes no warranty, guarantee, or representation as to the accuracy or sufficiency of the information featured in this article. While the content reflects current expectations, the information it reflects is subject to change without notice. Any reliance on the information provided in this article is done at your own risk. TTSG expressly disclaims any and all liability or responsibility for any direct, indirect, incidental, special, consequential, or other damages arising out of any individual’s use of, reference to, reliance on, or inability to use this article or the information contained in this article.