Life insurance is much more than just a safety net. For high-net-worth or ultra-high-net-worth clients, life insurance functions as a strategic asset that can preserve wealth, manage taxes and create a smoother transfer of wealth from one generation to the next. When designed thoughtfully, it offers tax-efficient and low-volatility returns that are aligned with long-term legacy goals.

But many clients view premiums as a sunk cost, instead of treating life insurance as an asset with its own return profile. In addition to understanding how these returns work, it’s also helpful to consider a case study or two that show life insurance in action

Financial Gains from Life Insurance

Financial gains generated from investing in a life insurance policy are calculated by estimating the average expected return with the internal rate of return at life expectancy representing the annualized growth of premiums paid to generate the death benefit.

Return profile calculation also includes standard deviation to measure variability by

Sam Rocke  EVP, Protection Sales Ash Brokerage

accounting for returns if the insured dies either earlier or later than expected. Each policy has an internal rate of return, or an IRR, which is the annualized rate that equates the premiums paid with the eventual death benefit at a given age, usually life expectancy.

The IRR can be compared to other asset classes on a tax-adjusted basis. Note: the range of potential outcomes is narrow. Timing of death may vary, but a policy backed by a strong carrier offers more predictability than markets subject to daily volatility.

Case Study #1: Mark and Mary

In one case study, Mark and Mary, each age 60, are a high-net-worth couple. Most of their wealth in business and real estate and they are facing estate tax challenges due to illiquid holdings. As they model their future, they begin to see a sizable projected estate tax bill and worry that their children could be forced to sell core assets (possibly at an inopportune time) just to raise cash for taxes. Their life expectancy is about 32 years.

They worked with advisors to fund an irrevocable trust and used life insurance to provide liquidity for their heirs.

They were looking at a joint, or survivor, policy that pays out at the death of the second spouse. Depending on when they pass away, they are looking at an expected return of about 6.15%.

Mark and Mary explored two specific premium options:

• Straightforward annual premium that remains level for life
• A customized design that starts with lower payments to reflect current cash flow constraints, with larger premiums due later when they expect the business and real estate portfolio to be even more valuable

They chose the level design that protects current cash flows, fits with their growth plans and secures tax-efficient liquidity for their heirs. They made annual contributions of $100,000. At year 10, they had generated a tax-free death benefit of $5,237,905.

What is the Return Profile?

Basically, it’s the amount of return Mark and Mary can expect on their investment. In this case, they are investing in life insurance, but to understand how favorable the return is, it’s necessary to compare to other assets and consider how taxes fit into the equation. The life insurance has a solid return on a tax-adjusted basis with relatively low volatility (standard deviation).

It’s important to remember that the sooner the client acts, the better the return. Waiting even one year, assuming their health doesn’t change, lowers benefits by 10%. Waiting five years, and assuming they have a health event or two that puts them in different underwriting class, can cut their benefits in half.

For high-net-worth clients, the structure of life insurance funding can be molded to fit clients' unique liquidity and business cycles. Consider a SKIP or STEP option for clients needing to pay more (or less) now or in the future.

Case Study #2: Jack and Judy

Another study involves Jack and Judy, a couple who own a $10 million car collection and have three children. Only one of their children values the cars — the other two would likely sell them. They need an estate plan that allows all their children to inherit and still allows the interested child to preserve the collection.

Instead of just leaving the collection equally to all three children, Jack and Judy avoid possible friction by using a trust to leave the collection to the interested child. To treat the other two children fairly, they purchased a $20 million second-to-die life insurance policy. The death benefit is structured so that each of those children receives $10 million in cash, tax free. This avoids forcing the other children to inherit or sell illiquid assets they have no interest in. This approach ensures fair inheritance and smoother estate transitions for families with diverse preferences.

Whether it’s a car collection, a business or a luxury asset, using a trust to promote equalization becomes a means to tax-efficiently pass benefits to heirs when life insurance is added to the plan.

Case Study #3: Susan

The final case study follows Susan, a high-net-worth individual in her late seventies. She holds $13 million of highly appreciated shares tied to a Fortune 500 company. The stock is central to her story and identity, and she wants to maximize the inheritance value and tax efficiency of the concentrated stock for her heirs.

To do so, she compared three paths:

• She could hold her shares in a brokerage account and leave them directly to her heirs
• She could transfer her shares into a trust
• She could place it in a universal life insurance policy owned by a trust

Just moving the stock into a trust eliminates estate taxes. But adding that life insurance wrapper allows eliminates income tax on the death benefit as well.

In the end, Susan chose the universal insurance policy for its tax-free growth and distribution benefits. This strategy allows her $13 million to potentially grow to $30 million and be passed down without estate or income taxes, preserving her legacy for heirs.

This strategy can also aid clients wishing to leave assets to charities.

These case studies share a consistent theme: when life insurance is treated as an asset, it can solve problems that traditional investments cannot address on their own. 

Life insurance can create liquidity, help equalize inheritances and turn tax-inefficient assets into efficient legacy vehicles. For high-net-worth and ultra-high-net-worth clients, the goal is rarely to replace existing investments with insurance. But with the right structure, carrier choice and premium design, life insurance becomes a flexible tool that supports wealth transfer, manages risk and helps ensure that what a family has built is preserved for generations.