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‘How do advisers address the complex needs of HNW clients?’ by Holly Hill published in Professional Adviser

Published On: 3 July 2024

In this article for Professional Adviser, Holly Hill explore how advisers can best serve the high net worth community and deal with their complex needs.

There are a number of additional things to consider when placing large life insurance policies for high net worth (HNW) individuals.

These clients will typically be more challenging from both a financial and medical underwriting perspective given the atypical nature of their financial affairs and personal hobbies, and advisers must be prepared for this from a client handling and expectation management standpoint.

Working with other advisers

It is important to note that HNW clients typically have a wider advice team supporting them. This might include lawyers, accountants and trustees etc.

Ensuring that all relevant parties are kept inside the insurance loop is critical to broking a life insurance solution that is both fit for purpose long term and which doesn’t cause any adverse effects to the Estate.

Some things to watch out for and to discuss with the wider advice team might include:

Who should be the policy applicant at outset – the life assured, a trust, the donee of a gift?

Who will then own the policy long term – will it be assigned to a discretionary or bare trust?

Who will pay the premiums and, if appropriate, are the premium payments significant enough to trigger their own tax charge to the extent to which they exceed the nil rate band?

Where gift cover is being purchased, who will ensure that the premium payments are maintained for the full seven years of the contract?

If a gift is being made from one generation to the next, is there a younger, fitter spouse that could make the gift and be insured for lower premiums?

As you can see, there are a number of more complicated tax and planning matters that must be considered when broking HNW protection. Working as part of a wider team is essential.

Client idiosyncrasies…

HNW clients will often partake in a host of more unusual and hazardous activities, all of which will have to be disclosed and discussed with insurers and reinsurers to determine if they will lead to a premium loading.

Activities can range from horse riding to wreck diving, Everest summits to solo helicopter licenses and we often find that the life market is equally varied in its premium ratings in response. It is always important to discuss the finer details of such activities to achieve the best rates in the market… for example, if your client wreck dives, do they go into the wreck, or just dive around it?

Medical writing

Firstly, HNW clients will most likely have a private GP as well as an NHS one and both reports will be required in order for life cover to be medically underwritten. Private surgeries can sometimes take just as long as the NHS to produce the required documents, so brokers will need to stay in touch with the surgeries to ensure the reports come back in a timely manner.

Secondly, alongside the hazardous hobbies, HNW clients will generally have had a great deal more preventative or exploratory medical appointments because private medicine is proactive rather than reactive.

This can lead to a significant pack of medical information being obtained, most of which will not be significant, but all of which will need to be discussed with insurers.

A great deal of care must be taken when discussing these data with HNW clients, as they may take offence at being asked to clarify private matters or interpret the additional questioning as a sign that you think they are unwell.

Financial underwriting

Life covers larger than around £2m will always require financial justification for the sum insured.

Some HNW individuals will have complicated financial arrangements that will need explaining to insurers. Some examples include tiered company structures, a series of trusts or unusual land or property that is difficult to value.

This is further complicated by the fact that HNW individuals tend to be highly private and so working with insurers to determine what constitutes a sufficient but sensitive amount of information to disclose is important.

Ongoing servicing

Finally, where life insurance policies are being used as an inheritance tax (IHT) planning tool for HNW individuals, the sums insured represent a significant store of value and the estate planning team will be relying on the policy proceeds providing the liquidity on the death of the life assured.

It is therefore essential that HNW brokers monitor and report on policies at least annually. This ensures that the estate team are kept abreast of any policy changes or actions required as well as making sure that the life office records remain up to date so that any claims can be paid out in a timely manner.

Author: Holly Hill, Associate Director at John Lamb Hill Oldridge

Article published in Professional Adviser, June 2024

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