How much life insurance can you get for a child? We were approached by a client to obtain “as much insurance as possible” on an infant. The high net worth client has fully embraced multi-generational succession planning and life insurance is an important part of their plan.
The life insurance component of their succession plan is used to offset estate obligations payable probably many decades in the future. They understand that the earlier insurance is placed the more cost efficient it is, and time allows for substantial growth in the death benefit.
As infant mortality in the first year is surprisingly high in Canada the maximum insurance for a child is generically limited to approximately $1,000,000, subject to the usual financial and medical underwriting.
Ask for any more than that and any underwriter’s answer is usually a resounding “No”.
So how did we get an insurer to issue an initial insurance amount of $18,000,000? Multi-generational business succession planning was a key component in getting such a large amount approved. The insurer was familiar with the family that we had helped acquire substantial amounts of insurance over many decades.
We presented a potential solution to senior underwriters and actuaries at a major Canadian life insurer. After working with the underwriters and actuaries we refined the solution, a unique life insurance policy.
Issued before the baby was a year old, the policy had an initial death benefit of $18,000,000. The death benefit was conservatively projected to grow to more than $145,000,000 at the child’s life expectancy. This meant we negotiated with the insurer, numerous levels of reinsurers to reserve $72,000,000 of pure insurance risk.
When the policy was delivered, the patriarch of the family explained to his son, the grandchild’s father, why the family buys life insurance. “it is simple” he said, “the money will always be there”.
“We review our plans every year and if we need more insurance we buy it”.
It really couldn’t be simpler than that could it!
Today the life insurance has grown well beyond the $18,000,000. Policy performance is on track and with only a few more years of funding to go cash flow interference will be go to zero.