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High-net-worth individuals: A simple guide to HNWIs in 2024

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As the value of real estate continues to rise, many people consider themselves to be one of the “new millionaires” or a high-net-worth individual (HNWI).

With the median home price in California now exceeding $800,000, a homeowner there could consider themselves to be in that category. But is that really the case?

Someone’s net worth doesn’t determine their status or qualification as an HNWI. If that doesn’t determine it, what does? Read on to learn more.

What is a high-net-worth individual?

Most financial experts agree on the definition of a high-net-worth individual: someone who has between $1 million and $5 million in liquid assets, meaning assets that could readily be turned into cash, including cash-on-hand. These assets include:

  • Stocks
  • Bonds
  • Certificates of deposit
  • Savings accounts
  • Mutual funds

Tangible assets — such as personal residences, investment properties, jewelry, vintage automobiles, and art or other collectibles — generally are not factored into the determination of HNWI status.

There is an alternate definition of an HNWI by the U.S. Securities and Exchange Commission (SEC). They define a high-net-worth individual as someone with at least $750,000 under management by a financial advisor or someone with a net worth exceeding $1.5 million.

Advantages of being a high-net-worth individual

Being an HNWI has its advantages, particularly with financial advisors. There are some wealth management firms that strictly work with HNWI clients. These firms provide these select clients with customized financial advice around complex strategies needed for tax planning, retirement income management, and estate planning.

In addition to often having a dedicated wealth manager, HNWI perks can include reduced fees, access to conferences and special events, tickets to entertainment, theatrical and sporting events, and other benefits.

There are two other categories financial firms use to define wealth:

  • Very-High-Net-Worth Individuals (HNWIs) — defined as people or households owning between $5 million and $30 million of liquid assets
  • Ultra-High-Net-Worth Individuals (UHNWIs) — people or households owning over $30 million in liquid assets

Not to be forgotten is a class known as the “Mass Affluent.” These are people or households with liquid assets between $100,000 and $1 million. Typically, the mass affluent don’t receive wealth management services.

Special considerations for high-net-worth individuals

Along with the perks of being an HNWI, there are two areas of complexity they face: taxation and insurance, which require working with financial advisors, CPAs, tax attorneys, and specialty insurance companies that often work together as a team to address the unique challenges of the HNWI.


Many people are under the misconception that the wealthy don’t pay their fair share of taxes. Yes, there are loopholes that HNWIs pay their advisors to find and minimize the tax bite as much as legally possible, but there are five types of taxes the HNWI is faced with.

  • Income Tax: The country’s average annual income in 2020 was $63,000, with a tax liability of 22%. An HNWI with a yearly income of $1 million that did not take full advantage of tax deductions would pay 37% ($370,000) in taxes to the IRS.
  • Capital Gains Tax: Many U.S. households pay little or no capital gains taxes when they sell stocks, investment properties, or other assets for a profit. Households earning less than $40,000 incur no capital gains taxes, nor does a couple filing jointly whose income is under $80,000. However, high-net-worth individuals pay a long-term capital gains tax as high as 20 percent. For example, if an HNWI bought a property ten years ago for $500,000 and sold it to a developer for $1 million today, they would face a capital gains tax of $100,000.
  • Estate Tax: HNWIs are currently exempt from paying estate taxes on the first $11,700,000 of their net worth. Anything exceeding that is taxed at a rate of 40% on the federal level and up to 20% on a state level. These rates have been as high as 90% in the past and are always subject to changes in the tax code.
  • Business Income Tax: Many HNWIs own their own business. Taxes on the company's net income must be paid, as well as unemployment taxes, Social Security taxes, and Medicare taxes.
  • Gift Tax: The annual gift tax rate ranges from 18% to 40% of the value gifted, with the first $15,000 of value being tax-exempt. This can be expensive for the HNWI attempting to reduce their estate tax liability by gifting significant amounts of their wealth to family members.

To reduce their tax liability as much as possible, HNWIs use passive investing, various types of entities, wills and trusts, and other strategies recommended by their advisors.


Another hurdle for HNWIs is insurance. Their circumstances are unique due to the high value of their assets, the potential cost of replacing those assets, and their exposure to personal and business liability. As a result, high-net-worth individuals must purchase a number of different types of insurance policies from agents, brokers, and insurance companies that understand their specific needs.

  • High-Value Home Insurance: Because of the high value of their homes, the limits on standard homeowners policies aren’t sufficient. Insurers will customize the liability limits of the home and its contents, and allow re-adjustments of the policy limits as their value increases.
  • Auto Insurance: As owners of luxury, exotic, and vintage vehicles, HNWIs also need policies through specialty insurers who offer more comprehensive coverage with higher limits.
  • Valuables: HNWIs need “valuable collection insurance” to cover their possessions, which is not available from mass-market carriers. Collection insurance covers such things as jewelry, paintings, sculptures, fine china, and sport or wine collections.
  • Boat Insurance: While many HNWIs enjoy their personal watercraft, they can also be costly to insure. Boats can be damaged by wind, rain, hail, lightning, waves, collisions, theft, or vandalism. Specialty insurers provide higher limit coverage for high-end boats and yachts owned by the HNWI.
  • Life Insurance: HNWIs need life insurance like anyone else, but they need more of it to provide funds for income replacement and estate taxes. Policy face amounts often exceed $1 million. HNWIs face the unique challenge of buying significant face amounts when they’re older because it took them many years to accumulate much of their wealth. Unfortunately, this can be detrimental because older adults are more likely to have pre-existing medical conditions that will cause their premiums to be increased or prevent them from getting approved for coverage.
  • Disability Insurance: Large incomes require large amounts of protection. HNWIs don’t want to spend down personal assets if they become sick or injured and are unable to work. Therefore, they require a knowledgeable disability insurance specialist to locate the right insurer to meet their income needs.

A capable team of professional advisors can protect and preserve the wealth of the high-net-worth individual. However, HNWIs face unique challenges and need to work with advisors that will provide unique solutions.

Breeze helps high-net-worth individuals find disability insurance.

The information and content provided herein is for educational purposes only, and should not be considered legal, tax, investment, or financial advice, recommendation, or endorsement. Breeze does not guarantee the accuracy, completeness, reliability or usefulness of any testimonials, opinions, advice, product or service offers, or other information provided here by third parties. Individuals are encouraged to seek advice from their own tax or legal counsel.

— Published July 24, 2021
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