Flexibility, versatility of life insurance makes it crucial puzzle piece in legacy planning: Manulife

S HIGH net worth individuals (HNWIs) continue to seek solutions that can ensure a smooth transition of wealth to the next generation, life insurance has proven to play an important role in their legacy planning. 

Whether it be business continuity, or an equitable split of inheritance, life insurance has the flexibility and versatility – through its cash payout – that can fit into different wealth management strategies of a growing high net worth population.

“The key concerns are largely similar, but new HNWIs seek a more holistic and tech-savvy approach to wealth management and legacy planning,” says Rena Lim, head of high net worth and financial advisory at Manulife Singapore.

For HNWIs, of which many own businesses, ensuring a smooth transition without jeopardising family ties and their businesses remains key goals of wealth preservation, she notes.

Crucial puzzle piece

While insurance is typically seen as a way to cover unforeseen circumstances, life insurance has benefits that extend to legacy planning and wealth preservation, says Lim.

To preserve wealth, HNWIs need to ensure assets are distributed according to wishes. They also need to reduce the risk of their wealth dissipation due to inflation, market volatility, economic downturns and unforeseen expenses, she says.

BT in your inbox

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign Up

Sign Up

With the lump sum death benefit that is provided by life insurance, HNWIs can ensure a smooth transfer of wealth by using the cash to cover taxes, debts and other expenses, Lim says. 

Most HNWIs also have other substantial assets, such as properties, businesses and investments. 

Insurance will thus allow HNWIs to diversify their risk, as the payout – usually a fixed amount regardless of market volatility – provides more financial risk diversification as compared to stocks and bonds, she adds. 

SEE ALSO

Beyond claim payouts: Life insurance an increasingly important tool in legacy planning for HNWIs in Asia

Furthermore, Lim notes that insurance can be integrated into one’s estate equalisation strategy, to help avoid disputes over the split of family assets and strain relationships.

“When planning for the succession of your business, it is common that not all children are interested in carrying on the family business,” Lim says. 

“You will still want to treat your children fairly, however, when it comes to leaving an inheritance,” she adds.

The payout can provide an equitable inheritance to children who are not active in their family businesses, while the business can be passed entirely to the other children who want to continue running it. 

The versatility of life insurance and its payout has also become more applicable to the HNWIs of today, as they are increasingly involved in their wealth management plans and going digital. 

HNWIs are interested in digital tools and platforms, with 37 per cent saying that a lack of digital maturity can encourage them to switch their wealth management firm, according to Capgemini’s World Wealth Report 2022.

Covid-19 had exacerbated this. HNWIs now demand self-directed tools and digital capabilities, following the pandemic years where they reduced their dependence on wealth managers and became more actively involved in investing, the report said.

In another report by Oliver Wyman and Morgan Stanley Research, it also expects that 65 per cent of wealth management engagement by 2024 will be through some form of digital means, including video conferencing and via apps. 

HNWIs today embrace digital platforms, favour digital communication, expect frequent assessments and value transparency, says Lim.

“Being more risk-tolerant, today’s HNWIs show more interest in innovative solutions, explore a wider range of asset classes and consider a broader investment horizon,” she says.  

Rising popularity

Being able to have a tool that can suit varying needs of different HNWIs will be especially important in Asia, given that the high net worth population is steadily rising in the region.

UBS’ Global Family Office Report 2024 noted that more than 1,000 billionaires will pass an estimated US$1.2 trillion to their children over the next 20 years. 

But, on average, just 47 per cent of family offices say that they currently have a wealth succession plan in place for family members.

Lombard Odier’s report on Asia-Pacific HNWIs in 2023 also noted that 78 per cent of HNWIs said it was important to share their own goals to build a long-term common vision and implement it together as a family. 

Yet, only 62 per cent of respondents said they had shared goals with their parents – this figure falls to 47 per cent with their siblings, and 55 per cent with their children.

In Singapore, the city-state is home to 244,800 resident millionaires, 336 centi-millionaires, and 30 billionaires, ranking it 4th on the global ranking of world’s wealthiest cities, according to a 2024 report by Henley & Partners.

Singapore is also one of the world’s top destinations for migrating millionaires, the report said.

As Singapore is set to become Asia’s wealthiest city very soon, wealth planners in the Republic need to seek adequate legacy planning tools to meet the growing population.

In Singapore, Lim notes that universal life (UL) policies have gained more popularity over the last five to six years among the HNWIs for estate planning, due to their unique features and flexibility. 

There are typically three types of life insurance in legacy planning. These are term life, which covers a fixed period of time; whole life, which guarantees lifetime protection; and UL, which typically provides lifelong coverage with flexible terms.

Unlike traditional whole-life insurance policies, UL plans allow flexible premium payment so HNWIs can adjust if their financial situation changes, Lim notes. 

Increasingly, indexed UL policies have also gained a lot of traction among the HNWIs. 

These policies track a stock market index, which offer a higher growth potential than usual ULs or traditional life insurance policies. But it also provides downside protection, so clients do not suffer negative returns during market downturns. 

“This appeals to those who want a balance of growth potential with protection,” Lim says. 

As HNWIs become increasingly savvy with their investments and tech use, Lim expects insurers will need to think about more innovative options to allow HNWIs to grow their wealth and build a lasting legacy.  

“Ultimately, life insurance is just one piece of the puzzle,” she says.

“It is essential for wealth planners to be able to help clients integrate it under a broader estate plan that comprises will or trust to ensure their wealth is preserved, protected and transferred according to their wishes.”