Beyond claim payouts: Life insurance an increasingly important tool in legacy planning for HNWIs in Asia
Life insurance should be seen as part of the arsenal of legacy planning tools
Lee Kim Siang
HE thought of a loved one passing away can be a difficult topic to discuss for any family. It is further complicated among high net-worth families when the passing of a loved one necessitates the difficult task of distributing his or her assets, and to do so fairly and equitably.
That is one of the toughest challenges facing high-net worth individuals (HNWIs) when it comes to legacy planning, said Harpreet Bindra, chief executive officer of HSBC Life Singapore. This is particularly so in Asia where there are complex family structures including multiple generations and extended families, or even cultural considerations such as favouring male heirs and firstborns as inheritors.
Yet, Bindra said that it is important for HNWIs in Asia to start such conversations early. And while there are still cultural barriers holding back some from embarking on this journey, a growing number of HNWIs are recognising the importance of addressing legacy planning early.
Some HNWIs may also think that the use of life insurance in legacy planning may prevent them from growing their wealth further, noted Bindra. On the contrary, legacy insurance plans do not just facilitate wealth preservation. It also contributes to wealth growth over time for HNWIs and plays a key role in estate distribution equalisation, multi-jurisdiction wealth management and portfolio liquidity planning, he noted.
Some life insurance solutions provided by HSBC Life for the purpose of legacy planning include:
• Whole-of-life insurance plans that provide a guaranteed payout and non-guaranteed bonuses. With its guaranteed cash value, it also offers access to liquidity during the policy term. However, Bindra noted that the non-guaranteed bonuses could vary, depending on the market conditions and investment performance. Some plans, like HSBC Life Emerald Legacy Life III, offer higher levels of protection, so loved ones get a larger payout. HNWIs looking to create income streams for their loved ones, such as those with young dependents, might prefer HSBC Life Sapphire Prestige Income II as it prioritises income generation.
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• Universal life plans, which are designed to provide a balance between lifetime insurance coverage and cash value accumulation to allow HNWIs to grow their legacy. Some advantages of universal life policies, such as HSBC Life Jade Legacy Universal Life and HSBC Life Jade Ultra Legacy Universal Life, include having a minimum guaranteed crediting rate and loyalty bonuses. There is also flexibility in premium payments and the scope of coverage depending on one’s life stage. Partial withdrawals can also be made without penalty.
• Indexed universal life (IUL) plans, which are tied to the performance of an underlying index. These plans provide an opportunity for HNWIs interested in participating in the upside of equity markets to grow their wealth, while also having downside protection at the same time. Like standard universal life plans, it also has flexibility in premium payments and death benefits. One such plan is the recently launched HSBC Life Diamond Prestige IUL. It allows policyholders to divide their premiums between an index account and a general account, which guarantees a minimum crediting rate of 2 per cent per annum. The index account grows through a crediting rate linked to the performance of the underlying index such as the S&P 500, currently capped at 10 per cent per annum. In addition, it provides downside protection with a floor rate of 0 per cent.
• Variable universal life (VUL) policies, such as HSBC Life Privilege Wealth VUL and HSBC Life Private Wealth VUL, are designed for HNWIs looking to transfer existing assets while minimising the need to liquidate them for cash payments.
The growing complexity of HNWI’s wealth needs, along with the increasing range of financial and investment instruments, has led to more impetus to develop integrated solutions.
Life insurance products have evolved as a response to the needs of HNWIs, who want to meet all their wealth needs across various areas such as banking and insurance in one place, said Bindra.
Insurance propositions have evolved beyond just benefit payouts at insured events. Rather, he said that insurance plans need to recognise the interconnectedness between physical, mental, and financial wellbeing.
Some of HSBC Life’s life insurance plans also include lifestyle benefits, such as a discount on insurance charges when policyholders are able to demonstrate health improvements.
Despite their wealth, many HNWIs have illiquid assets or significant business obligations, which may leave their family wealth unprotected if they were to fall ill or pass away.
Life insurance, therefore, should be seen as part of the arsenal of legacy planning tools - along with wills, trusts, gifts, and a lasting power of attorney - with each part playing its own unique role in a comprehensive legacy plan.
“It offers liquidity, which can be crucial in covering expenses without forcing the sale of illiquid assets such as real estate and businesses. It can also protect assets even after the passing of the HNWI, ensuring that the intended beneficiaries receive the full value of their inheritance and providing peace of mind through the years for both the HNWI and their loved ones with the guaranteed benefits,” said Bindra.
Given that the wealth and legacy planning needs of HNWIs are highly complex and personal, Bindra also said that it is important for them to engage a trusted financial adviser to look into how each mechanism and solution can be best incorporated into the legacy plan, while ensuring that nothing is overlooked.
Having a financial adviser as an independent third-party could also help keep conversations on legacy planning, which can be challenging among high net-worth families in Asia, more neutral.
Bindra said that HSBC Life takes a personalised approach when structuring a legacy plan for HNWIs in Asia by focusing on their objectives and intentions. Advisers would need to have a deep understanding of the needs of HNWIs and the solutions available to craft a bespoke plan for them.
Part of this customisation often involves recognising the complexity of family structures such as multigenerational and extended families, and families residing in different countries.
These bespoke plans, that also come along with insurance solutions, provide flexibility and liquidity to equalise inheritance and avoid potential family conflicts. This involves identifying the best ways to leverage existing assets, whether they are businesses, real estate or financial investments, to support the HNWI’s legacy goals and to also implement a plan for a smooth transfer of wealth to their loved ones.
“We understand the importance of building a legacy plan for our HNW clients that aligns with their financial goals, personal values and family dynamics. Therefore, when structuring a legacy plan for HNWIs in Asia, we start by understanding what our clients want to leave behind and to whom. This often includes financial goals, continuity of family business and providing for multiple generations,” he added.
“Our approach and highly customisable solutions ensure that all family dynamics and cultural expectations are considered to achieve equity in the distribution of wealth.”
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