Rising appetite for high-net-worth insurance, even among the mass affluent

HIGH-net-worth (HNW) insurance is typically pitched at wealthy clients with assets of well over US$1 million. But a new study by Capital for Life, an international insurance advisory firm, has found that the majority of enquiries (78 per cent) for indexed universal life (IUL) policies has come from those with net worth of less than US$500,000.

Interest among the mass affluent, however, may be a double-edged sword. While it expands the traditional audience for HNW insurance, it also underscores the need for needs-based and suitability advice.

In fact, Capital for Life also found that 84 per cent of enquirers had no advice, and 64 per cent aimed to make a decision within 90 days.

The study is based on the responses of some 1,800 verified individual enquiries globally, including Singapore. Sixteen per cent of enquirers had net worth of between US$500,000 and US$999,999. This is the segment with the “highest conversion potential”, said the study. “It represents financially sophisticated clients who value planning guidance but lack private-bank access.”

Six per cent had net worth of at least US$5 million. In terms of income, 84 per cent earn less than US$200,000. IUL suitability, however, is determined not by payslips but by clients’ balance sheets.

Capital for Life specialises in high-value international life insurance and wealth structuring, working alongside private banks and family offices. The typical sum-assured sizes that it advises on range from US$1 million to US$50 million, with a growing proportion in the US$10 million to US$25 million range.

The firm contracts “significantly more than US$100 million of sum assured” annually, across multiple jurisdictions.

IUL is a type of HNW insurance whose popularity has surged, overtaking the traditional universal life structure where policies are quoted with a fixed crediting rate. Premiums for IULs are typically channelled into two accounts – one provides market participation linked to clients’ choice of equity indexes; the second account provides a fixed crediting rate. For the equity portion, there is typically a floor on the downside, and upside participation may also be capped.

Last week, HSBC rolled out the HSBC Life Indexed Flexi Income plan, an IUL designed to provide lifetime income. For market participation, the range of indexes to choose from include the S&P 500 and Nasdaq 100. The index account may have a floor rate of 1 per cent, depending on the index. It has a minimum premium of US$100,000, which may be paid as a single premium or via a five-year payment plan of USD 20,000 per year.

Capital for Life chief executive Carlton Crabbe said the survey showed IUL is no longer viewed as a death-benefit product. “Buyers increasingly treat IUL as a multi-purpose financial planning tool, combining capital protection, tax-deferred growth, and private liquidity within a globally portable structure.

“Common uses include retirement income planning, business liquidity, cash-value access through policy loans alongside traditional family protection and estate planning objectives.”

Asian clients, however, tend to approach IUL differently from clients in the US or Europe, he said. “We believe Asian clients typically prioritise death benefit certainty, capital preservation with controlled growth and contract simplicity versus complex trust structures. This aligns closely with the structural design of IUL policies.”

US clients, he said, more often use IUL for tax-advantaged accumulation and future policy loans for supplemental income.

Crabbe said the survey reflected a significant gap in advice, which is a “clear opportunity”. “One of the most consistent findings from our survey is that the majority of people actively researching IUL are doing so without an adviser relationship in place. These are not casual enquiries. In most cases, the individuals are already trying to solve a specific problem, whether related to tax, succession, liquidity or balance sheet risk.”

In terms of premium structure, traditionally HNW insurance was purchased through a lump-sum premium, and funded by premium financing. When interest rates were low, clients could earn a carry from the positive differential between the policy’s crediting rate and the loan rate.

But the rate-hiking cycle from around 2021 to 2022 significantly raised loan rates, making premium financing unattractive. Clients today typically purchase via a multi-pay mode without a loan.

Crabbe does not expect premium financing to drive IUL demand, even as interest rates trended lower last year and are expected to further decline this year. “Lower rates may make some premium-financed structures more attractive at the margin, but premium financing remains complex and restrictive for many clients.

“These arrangements typically involve arrangement fees, collateral requirements, offshore holding structures, interest servicing and limited flexibility. Facilities are often short term or revolving, commonly one to two years, with the ongoing risk that the bank can withdraw or renegotiate the facility.”

Clients may also be asked to park assets with the lending bank.

Multi-pay premium structures are more flexible, he said. “They allow clients to fund policies progressively, adjust contributions and retain control without relying on external lenders or committing assets to a bank relationship. In our experience, this flexibility is increasingly valued, particularly among internationally mobile clients.”