Safeguarding legacies with peace of mind

WITH life insurance increasingly becoming an essential wealth planning tool, Citi Private Bank has seen an increase in its referrals of clients with insurance needs over the last two years – some even for jumbo coverage amounts following client conversations with third-party brokers.

This comes as uncertainties brought on by Covid-19 have prompted a mindset shift, accelerating discussions among private banking clients on the importance of wealth protection and preservation in their estate and legacy plans.

“The Covid pandemic accentuated the fragility and uncertainty of life. It also gave clients time to sit down and review their priorities and life goals,” recalls Sujoy Ghosh, Citi’s Head of Insurance for Asia Pacific and Europe, the Middle East and Africa, and Asia Head of Business Development and Partnerships. He notes that many clients of late are opting to restructure their wealth portfolio with insurance after discovering how related solutions have advanced considerably.

Another recent industry trend is that the multi-pay option for premiums is also fast becoming favoured amid a rising interest rate environment, as it provides clients with the flexibility of staggering their premium payments over a period of time.

But how early should these individuals start wealth planning? 

“As soon as possible,” is Ghosh’s answer.

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“Wealth planning can be used as building blocks to protect you at all stages in your life and at every important part of life’s milestone – from getting married, your first home, a newborn or for business liquidity needs, and moving abroad,” he says.

Navigating challenges with insurance

In the same vein, Ghosh highlights how the benefits of life insurance would help to provide increased financial security for the family by acting as a nest egg or emergency fund. This would ensure sufficient liquidity for family members to repay outstanding loans, settle taxes, or invest even after the settlor’s lifetime.

Beyond family members, it can also prove crucial in other instances of wealth transfer while protecting business assets and key employees in the event of an unexpected death.

While Citi Private Bank does not advise on taxes or legal matters, its team of wealth planners work with independent tax and legal advisers appointed by the client to provide advice on the numerous challenges to wealth preservation.

Such challenges could range from taxation to legal disputes, but can be mitigated and sometimes even eliminated altogether, says Ghosh.

For instance, life insurance could be used as an effective pre-immigration tool when family members plan for residency in potentially high-tax jurisdictions such as in the US, UK or Canada. Depending on the solution selected, heirs living in these jurisdictions would be able to receive income, estate or inheritance death benefits while minimising their asset exposure to taxes. 

“We work with our clients’ independent legal and tax advisers to customise a plan for their needs by structuring their wealth efficiently, allowing them to mitigate taxes and ensure coordination between tax regimes of relevant countries,” explains the insurance head.

“This includes easing the transition of wealth to a client’s selected beneficiaries, while minimising family conflicts and maintaining confidentiality.”

Integrating insurance as part of customised wealth planning also ensures that all bases are covered. Having a policy in place would ensure an equitable distribution of assets even in special circumstances, such as providing for family members who are not considered heirs under inheritance laws – or preserving illiquid assets like real estate or fine art. 

More than just a safety net

Part of Citi’s private banking solutions includes leveraging partnerships with external insurance brokers and carriers to help its clients to achieve their wealth transfer goals. Private bankers may refer clients to approved insurance brokers if a potential need is identified during their discussions. 

Proceeds from life insurance held by a trust may either be distributed to beneficiaries of the trust or continue to be held in the trust for beneficiaries to prevent heirs from selling assets at an inopportune time. They may also be used for other purposes specified in the trust agreement such as to support a charity.

This is as opposed to a regular insurance policy, where proceeds are distributed out in cash to the beneficiaries of the policy with no guidance on how the proceeds are to be used.

Aside from life insurance and trusts, Ghosh emphasises there are a plethora of other facets that also go into the extensive and often times complex wealth planning process, such as investments and other tools that Citi Private Bank’s relationship  managers can advise on.

“We also have investment, foreign exchange and lending specialists working as a team to provide holistic solutions to clients and their families and in some cases for generations to come.”

Beyond protecting individuals and businesses from risks, Ghosh believes insurance has incrementally taken on a wealth management aspect for several reasons.

For one, it could contribute to the diversification of a client’s global asset allocation as a non-correlated asset class - in the process reducing overall portfolio risk as its performance is not directly tied to the fluctuation of traditional financial markets.

If structured properly and in-force at the time of the insured’s passing, insurance may provide liquidity for the next generation by mitigating legal challenges from creditors and third-party claims – allowing clients to pass their wealth on to heirs free of liabilities.

“Some think insurance is for those who are not financially able. This is untrue, as the larger your assets are (and if they are multi-jurisdictional as well), the more importance should be placed on insurance to ensure that your assets will be distributed carefully and in the way you want,” says Ghosh.

Given the rise in client queries around insurance, Citi Private Bank is looking to enhance its current service in the coming months.

Ghosh says: “We are planning to provide a more holistic solution for our clients, and are working to launch this at the appropriate time.”