Insurance cover?

Am wondering how the experts here view insurance. Medical insurance benefit is obvious to me and I totally buy it for myself and all family. But how about life insurance?

My take is that life insurance only applies if I have dependents who need to have money if I die. But if I do not have dependents or if I have more than enough money for dependents, then I should not buy life.

But I do notice many people who fit the latter group ( net worth 10m -100m usd) who still buy life insurance. Usually upfront premium instruments called universal life in usd. About 700k usd insures for about 5m or something. There is portfolio value and they allow leverage for it. But isn't the principle of btitr still applying even if they want insurance? And why should they want insurance?

Am I missing something here? So far, i have not bought any life insurance other than those I bought early on in working career. Any wise observations or comments ?

(24-08-2012, 08:32 PM)greypiggi Wrote: Am wondering how the experts here view insurance. Medical insurance benefit is obvious to me and I totally buy it for myself and all family. But how about life insurance?

My take is that life insurance only applies if I have dependents who need to have money if I die. But if I do not have dependents or if I have more than enough money for dependents, then I should not buy life.

But I do notice many people who fit the latter group ( net worth 10m -100m usd) who still buy life insurance. Usually upfront premium instruments called universal life in usd. About 700k usd insures for about 5m or something. There is portfolio value and they allow leverage for it. But isn't the principle of btitr still applying even if they want insurance? And why should they want insurance?

Am I missing something here? So far, i have not bought any life insurance other than those I bought early on in working career. Any wise observations or comments ?

If u sick and disabled will u still have income? How long can yr savings and investments last you if u continue to be unable to work.

Think of insurance as your income protection.
Life (death) insurance is family protection.

Universal life is mainly for legacy planning. Nothing else guaranteed yr family 1 million by setting aside 300k.

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Universal life is also used for estate liquidity.
Asset rich doesnt mean that it's liquid.

Thanks kelvin! By estate liquidity, do u mean that if one owns properties or a family business or some very illiquid asset, then because universal/life pays out in cash, it helps? Why not just put the same 1m premium into a conservative fund and then it is liquid and will be part of estate? The returns will probably equal or beat the insurer.

For the group above 10m usd investable assets, unless one expenses are above 500k per year, even just putting into normal bond portfolio will cover and this is before leverage. So I think can afford to be not working until death provided medical insurance is all in place. Like I said, medical and critical I fully agree.... It is the life insurance I cannot understand for UHNW..

(24-08-2012, 10:50 PM)greypiggi Wrote: Thanks kelvin! By estate liquidity, do u mean that if one owns properties or a family business or some very illiquid asset, then because universal/life pays out in cash, it helps? Why not just put the same 1m premium into a conservative fund and then it is liquid and will be part of estate? The returns will probably equal or beat the insurer.

For the group above 10m usd investable assets, unless one expenses are above 500k per year, even just putting into normal bond portfolio will cover and this is before leverage. So I think can afford to be not working until death provided medical insurance is all in place. Like I said, medical and critical I fully agree.... It is the life insurance I cannot understand for UHNW..

Yes
If one passed away and there is no liquid estate, loved ones may need to liquidate assets at a loss. It's harder to distribute assets equally as well. This is the issue that hnw individuals may face.

You are comparing returns based on own investments vs insurers returns. Your example of 1 million in a safe fund may give better yield but it will never give u a return of 4-5 million. Not even property.

Look at it as a guaranteed leveraged tool rather than investments

(24-08-2012, 10:57 PM)Kelvin Wrote: Yes
If one passed away and there is no liquid estate, loved ones may need to liquidate assets at a loss. It's harder to distribute assets equally as well. This is the issue that hnw individuals may face.

You are comparing returns based on own investments vs insurers returns. Your example of 1 million in a safe fund may give better yield but it will never give u a return of 4-5 million. Not even property.

Look at it as a guaranteed leveraged tool rather than investments

hmm.. Actually if I am mid thirties and put 1m in bond portfolio at 5%, it will double every 14 years. So it is worth 4m by the time I am 62 and 8m when I am 76. It is only logical that the insurer charges its annual premium even on universal life. So the way I see it is that the 3m over insured amount is the premium I paid..

Am I making sense here? Anyone else can comment?

Hi Greypiggi,

I'm not hnw, so I can only guess a few reasons why they'd buy universal life:
- for estate duty purposes, but not applicable in Sgp any longer in recent times;
- some may be rich now, but if they are business owners, they may think that their wealth is not guaranteed till the day they die;
- some just dunno wat they're doing, or just helping out their agent friend.

(26-08-2012, 12:15 AM)greypiggi Wrote:

(24-08-2012, 10:57 PM)Kelvin Wrote: Yes
If one passed away and there is no liquid estate, loved ones may need to liquidate assets at a loss. It's harder to distribute assets equally as well. This is the issue that hnw individuals may face.

You are comparing returns based on own investments vs insurers returns. Your example of 1 million in a safe fund may give better yield but it will never give u a return of 4-5 million. Not even property.

Look at it as a guaranteed leveraged tool rather than investments

hmm.. Actually if I am mid thirties and put 1m in bond portfolio at 5%, it will double every 14 years. So it is worth 4m by the time I am 62 and 8m when I am 76. It is only logical that the insurer charges its annual premium even on universal life. So the way I see it is that the 3m over insured amount is the premium I paid..

Am I making sense here? Anyone else can comment?

That's investment point of view. If u die tomorrow will your bond become 4million that your family will need over thru next 30 yrs or they have to take over thru investment and wait 30 yrs.
What if u bought the wrong bond? Bond crash?

Insurance is not an investment tool and will not outperform investment. But it can buy time

Be careful when buying "Universal Life".
Some of them have terms that don't guarantee a paid out if some conditions happens.
Better scrutinize all the terms in the contract.
Anyway, i am very wary about insurance products.

some people i know buy a universal life, stick it in a trust to avoid potential liabilities down the road to call on it.

but i suppose if a) you have no dependents, b) don't want to leave money for them or happy to see them take whatever is left (ie what you have now is sufficient for their needs), there's no sense getting a universal life.

(26-08-2012, 11:29 AM)Temperament Wrote: Be careful when buying "Universal Life".
Some of them have terms that don't guarantee a paid out if some conditions happens.
Better scrutinize all the terms in the contract.
Anyway, i am very wary about insurance products.

The risk of losing money from any investment is much higher than insurance

As long as u didn't get ILP