LIFE INSURANCE REVIEWS FOR HIGH-INCOME HOUSEHOLDS

The standard income replacement benchmark — 10 to 12 times annual income — produces a coverage need of $5 million to $12 million for someone earning $500,000 annually. The actual need depends on the specific financial situation: existing assets, outstanding debts, dependent obligations, business interests, and estate planning objectives. A comprehensive life insurance review models the actual need rather than applying a generic formula.

Many major life insurance carriers offer single policies in the $5 million to $20 million range, subject to full underwriting and financial justification. For very large amounts — $25 million or more — layering policies across multiple carriers is common. An independent broker with access to the specialty life insurance market can identify the carriers and structures appropriate for large coverage amounts.

A life insurance policy review examines the current policy's in-force illustration — projecting future performance based on current assumptions — and compares it to the original illustration. It also reviews coverage adequacy at current income and net worth levels, and confirms that ownership, beneficiary designations, and policy structure align with the current estate plan. A review is warranted at any major life event and at least every three to five years.

When the insured owns a life insurance policy, the death benefit is included in the taxable estate. An irrevocable life insurance trust (ILIT) owns the policy instead. Because the insured does not own the policy, the death benefit is not included in the taxable estate — effectively removing the death benefit from the estate tax calculation. The ILIT requires proper formation, premium gifting structure, and ongoing administration to maintain its tax advantages.

Many high-income earners use both: a permanent policy for estate planning purposes and a larger term policy to supplement income replacement coverage during peak earning and obligation years. The permanent policy serves the long-term estate planning need; the term policy provides affordable additional coverage for the years when it is most needed.

A business owner's personal life insurance — for family income replacement and estate planning — and their business life insurance — key person coverage, buy-sell funding — should be reviewed as a coordinated whole. Coverage that exists at the business level may affect the need at the personal level, and vice versa. Managing both programs through one advisor with visibility into the full picture prevents gaps and redundancies.