By Brandi Graver and H. Lillian Vogl
What can people pass on to their loved ones if something were to happen to them suddenly? It depends on the day and, in some cases, the hour. Recent events have many clients concerned about the stability of their wealth, not only for their own benefit, but also for their legacy beneficiaries.
If you have clients who are concerned about what market volatility might mean for their loved ones, life insurance can provide peace of mind that generational wealth won’t get lost in the storms.
Business owners and others with highly concentrated positions are particularly susceptible to “losing it all.” Even investors well diversified in equities – in which timing is everything – can experience significant losses in their portfolios because, in some cases, they can’t control the timing.
There’s an old saying, “Don’t put all your eggs in one basket.” Many investors are familiar with the concept of diversification, and usually try to spread their wealth among different traditional asset classes, including cash, certificates of deposit, money market accounts, stocks and stock options, bonds, real estate, commodities or other tangible assets. Different assets are subject to different risks and have different potential rates of return.
Where Life Insurance Fits
Life insurance is a financial instrument that is increasingly recognized as a distinctive asset class that can further diversify a person’s total wealth portfolio. The value of the death benefit in a life insurance policy can bring stability to a client’s family protection and legacy goals. Depending on the type of life insurance, its value may be wholly uncorrelated with equity and debt markets, or it may have some correlation but its volatility is reduced by contractual guarantees.
Note that some life insurance policies also accumulate significant cash value, which may also diversify the sources of liquidity that are available during the client’s lifetime. This makes life insurance highly effective for reducing volatility.
There are several potential advantages of life insurance as an asset in a client’s portfolio:
- It immediately leverages a relatively small premium payment into a much larger death benefit for beneficiaries.
- Death benefits can be guaranteed to never decline as long as cash is not removed from the policy and sufficient premiums are paid.
- If the ownership is properly structured, proceeds may be received free of federal and state estate and income taxes.
- Guarantees in the contract are fully uncorrelated with future equity and debt markets.
Life insurance is a powerful financial tool, but it is not a substitute for equity or debt investments. Life insurance should be purchased only by clients who can afford the premiums and need the death benefit protection.
Clients have worked hard to build their net worth. Together with their tax and legal advisors, insurance professionals can assist them by suggesting strategies to stabilize the wealth they are able to pass along to the people they care about. Life insurance may be able to help.
Brandi Graver, CLU, is director, advanced sales, Crump Life Insurance Services. Brandi may be contacted at [email protected].
Lillian Vogl, JD, CFP, is director, advanced sales, Crump Life Insurance Services. Lillian may be contacted at [email protected].
© Entire contents copyright 2020 by InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.com.