High Net Worth Individuals Emphasise the Importance of Insurance

On the 24^th June 2020, AIA Singapore, in conjunction with Ernst & Young, released a report on the insights into High-Net-Worth Individuals (HNWIs), specific to their views and adoption of insurance solutions for wealth management.  The intent was to identify specific challenges that HNWIs faced, and proposed insurance solutions to address these challenges. 

Firstly, it must be said that wealth management is a process that encompasses many areas of asset management besides investment, from risk mitigation, to legacy planning.  This encompasses many areas of a person’s life, including his family.  Wealth management is as much sustainable living as it is growth across generations. 

Increasingly, instead of getting the advice of multiple disparate entities and persons across disciplines, HNWIs have increasingly realised that they are better served choosing one financial consultant team, which includes people versed in areas from tax mitigation, to insurance, to investment.  This is more efficient, and allows these individuals to plan discreetly for the long term.  The modern consultancy team, such as Equinox GEMTZ, handles many aspects of the client’s portfolio and assets.  They include the following: 

Wealth Protection

Wealth protection is about identifying risks, from political exposure, to legal claims, to critical illness, to loss of life and the consequences of these.  Wealth protection is about ensuring risks do not lead to the loss of wealth, or at the very least, mitigate it.  This includes both life insurance and general insurance.  This includes structuring an entire insurance portfolio, and creating legal contracts to assign beneficiaries, to assign portfolios to distinct legal entities, to creating lasting powers of attorney, to even advising on the will and trust structure. 

Part of wealth protection is to create firewalls to sandbox specific threats to the client and his assets.  This also includes legal avenues of tax mitigation, addressing specific threats in areas that may involve security consultancy, and maintaining a business intelligence network.  Much of wealth protection is understanding where the threat is coming from.  Wealthy individuals have powerful friends, but also powerful enemies. 

It is obvious that such clients require comprehensive insurance coverage for death, disability, critical illness, accidents, and many forms of exposure.  These normally require high net worth policies, sometimes tailored, and corporate solutions plans for key personnel.  There are even insurance policies used to create a golden handcuff to secure talent for the long term. 

Liquidity Management

Liquidity management is about ensuring that business entities and the entire network, both the client as an individual, and major business interests, remain solvent in the event of untoward developments.  This also means putting in place policies that cover loss of income, and able to cover debt that the estate or any entities may incur.  The insurance policies are meant to address long-term debt. 

Retirement Planning

Most individuals eventually hope to transition from work to retirement, or at the very least, hand over aspects of the business to an heir or heirs.  This requires planning for specific income goals to maintain a standard of living, and mitigating the financial risks of getting older. 

Legacy Planning

Finally, people ultimately want to be remembered for something that matters.  This may involve creating a vehicle, such as a testamentary trust to distribute the estate over a period of time, or even across generations.  This also involves considerations of tax exposure, political exposure, and beneficial relationships.  This is estate planning on a larger scale.  There are HNWIs who want to establish endowments for education, the arts, or some form of charity. 

In consideration of the report, we note several things.

1. 90% of HNWIs in Singapore leverage on insurance for wealth and legacy planning.

2. 70% of HNWIs in Singapore have insurance that comprises more than 10% of their wealth and legacy planning.

3. 86% of HNWIs in Singapore own medical or critical illness insurance plans.

4. 96% of HNWIs in Singapore believe that retirement planning is an important part of their wealth management.

5. 48% of HNW entrepreneurs in Singapore have business wealth protection via a range of insurance products. 

The wealthier the individual, the more aware they are that insurance is an important component of risk mitigation, retirement planning, and legacy planning.  These numbers are well in excess of average people.  With the increasing number of family offices and funds setting up in Singapore, this area of the finance industry is expected to grow exponentially in coming years.