Life insurance companies turning to wealthier customers

Nov 15, 2010

Some life insurance companies may be turning to wealthier clients.

A report published on October 3 by the Wall Street Journal indicates the life insurance industry has opted for wealthier clientele over the last few years.

The findings were based on data compiled for the paper by LIMRA and showed a marked switch to "high-end" policies. Those for $2 million or more accounted for 40 percent of whole and universal policies sold in 2007.

"Such large policies accounted for just 10 percent a decade earlier, and 1 percent two decades ago," the Journal said.

One reason why wealthy consumers and insurance companies may be drawn to each other is because these policies offer tax-free benefits. The interest accrued through the investment portion of the product is pretty much free from taxes, while the death benefit is not subject to the federal government's levy.

The benefit for providers is they get to sell larger, more expensive policies. As a result, middle-class consumers may not be experiencing the tax benefits associated with life insurance policies.

Along with the potential of a tax-free investment vehicle, life insurance can guarantee a person's family has funds to work with if they should die.

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