Financially underwriting the high-net-worth market

Underwriting the high-net-worth (HNW) market demands deep expertise and disciplined judgment. Shortcuts may offer speed, but they compromise long-term profitability. Underwriters in this space face unique challenges: opaque financial disclosures, intricate ownership structures, aggressive sales projections, and heightened regulatory scrutiny.

Premium financing

Premium financing is a strategy used to preserve liquidity while securing permanent life insurance. Clients typically borrow funds—often from banks or third-party lenders—to pay large premiums.

The underwriting challenge lies in verifying the applicant’s liquidity and repayment strategy, which can include sourcing funds from their own capital or estate assets. Key considerations include loan terms, interest rates, and the exit strategy. From the insurer’s perspective, overleveraging is a significant risk, especially when policy performance falls short of illustrated values. This risk is amplified in non-recourse loan scenarios, where clients may not fully understand the product they’ve purchased.

Aggressive product designs and illustration software can make these strategies appear more attractive than they are. In some cases, they may even lead to policy sales to third parties, introducing stranger-owned life insurance (STOLI) risks—an outcome detrimental to the industry.

Charitable giving with life insurance

Life insurance remains one of the most tax-efficient tools for charitable giving. Whether naming a charity as beneficiary or transferring policy ownership, these strategies support legacy planning and offer tax deductions.

Underwriters must assess the true intent behind the coverage, the amount applied for, and whether insurable interest is satisfied. The goal is to confirm that the coverage genuinely supports charitable giving, not indirect personal gain.

Documentation is critical: ownership transfers, donor objectives, ties to the charity, and the donor’s overall financial profile must be reviewed. Actuarially, lapse rates and ownership transfers later in the policy lifecycle should be monitored to ensure long-term viability.

Specialized life insurance policies

Certain life insurance products are structured to offer meaningful early cash values, which can support premium financing strategies and provide accounting benefits. These features may assist with loan facilitation, balance sheet enhancement, and improving internal rates of return (IRR) in specific planning scenarios. 

However, these policies require careful evaluation to avoid over-insurance—particularly when estate tax needs are overestimated or income-based coverage formulas are applied without thorough analysis. Underwriters should assess financial justification and review policy layering across carriers to ensure alignment with the client’s overall financial profile, including net worth and liquidity. 

Actuarial teams should monitor lapse rates and concentration risks to assess long-term policy sustainability, especially in cases involving large upfront premium contributions. 

Large case estate liquidity planning

Permanent life insurance, often held in an irrevocable life insurance trust (ILIT), is a powerful tool for estate liquidity planning. It protects beneficiaries from forced liquidation of business or real estate assets to cover estate taxes.

The underwriting challenge is ensuring accurate valuation of estate assets. Are valuations inflated? Are reliable documents provided? Is the full financial picture disclosed?

Tax estimates must be realistic and defensible. Insurance coverage should reflect actual exposure, not arbitrary figures. Underwriters must validate the need and ensure alignment with estate planning goals.

Best practices for underwriting success

To improve outcomes in complex HNW cases:

• Begin with a strong financial justification memo that clearly outlines how the policy fits into the client’s estate plan.
• Involve advanced markets teams and collaborate with specialists early to guide product selection and structure.
• Fully document ownership details, premium deposits, and funding strategies.

Above all, transparency is key. Trust is built when underwriters receive complete, honest information. Complexity can be managed—but lack of transparency will derail decisions faster than any technical challenge.

Get expert underwriting and large case support

At BMO Insurance, our new Advanced Markets Underwriting team is distinguished by deep expertise, with each underwriter bringing over 20 years of individual experience in evaluating complex, multi-layered cases. This level of specialization allows us to navigate the nuances of affluent client profiles with precision and confidence. Our underwriters take the time to personally consult with advisors on large deals.

Supporting this is our BMO Insurance Advanced Markets Business Development team, a dedicated group offering legal, tax, and insurance expertise. They are available to collaborate directly with advisors to address sophisticated estate and corporate planning needs. 

Together, these teams form a strategic advantage in placing large cases—offering not only technical underwriting strength but also consultative insight that helps advisors’ structure and position solutions effectively. Our experience in the high-net-worth market means we understand the intricacies of wealth, risk, and legacy planning. When you partner with BMO Insurance, you gain access to a seasoned, responsive team that is committed to helping you win the case through deep knowledge, tailored support, and a shared goal of delivering exceptional outcomes for your clients

Disclaimer

This article is for information purposes only and is not intended to provide insurance, financial, legal, accounting or tax advice and should not be relied upon in that regard. BMO Life Assurance Company does not provide any such advice to the policyholder or to the insurance advisor. Facts or information provided in this article are believed to be reliable and accurate, but we cannot guarantee that it is reliable and accurate at all times.

Insurer: BMO Life Assurance Company   

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