Life insurance is often narrowly perceived as a liquidity tool for the estates of high-net-worth individuals. While true, there’s a growing view within this community, and among their advisors, of life insurance as a contingent asset class (that is, by paying out on the insured’s death), a legacy planning vehicle that can add tremendous value and diversification to a family’s wealth transfer portfolio. Life insurance is attracting the attention of sophisticated investors and their advisors who wish to improve the risk-adjusted return in the portion of their wealth that will pass to the next generation.
The phrase, “life insurance as an asset class,” isn’t new. Traditionally, advisors with this view would generally refer to the projected return on investment (ROI) at death for comparison to other traditional asset classes, which is an incomplete analysis, like comparing stocks to bonds only by their expected returns. Like any asset class, life insurance should be evaluated in terms of the return and risk it’s expected to add to a portfolio. In the past, advisors often addressed its expected risk anecdotally by acknowledging its lower risk nature. But life insurance can be the best performing asset in your portfolio!
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