It is becoming more and more fashionable for investment managers and advisors to consider life insurance as part of an individuals overall portfolio. This is chiefly due to two reasons:
First, we spend a lifetime accumulating assets, and when we die we want to transfer those remaining assets to our loved ones. Yet, very little thought if any is given to how those assets will be transferred to minimize loss and in an expedient way.
Secondly, our experience since the 2008 financial crisis has brought forth many clients who recognize that their portfolios may have excessive risk which require mitigation. What do they desire? Liquidity, tax-efficiency, and minimal exposure to volatility.
Aren’t traditional asset classes used in portfolios to work towards financial goals while you’re living?
Yes, traditionally. However, life insurance may deliver greater promise on the preservation of wealth transfer as well as provide living benefits in conjunction with the investment portfolio (for a specific risk profile) than a portfolio without life insurance. The amount of life insurance to be comprised of in your portfolio should be carefully reviewed with your financial advisor.
What’s makes life insurance a unique asset class?
At the recent 2013 Canada Sales Congress held at the AllStream Centre in Toronto, speaker Paul Bourbonniere of Polson Bourbonniere Financial Planning Group Inc. briefly touched on this notion. He said that for an asset class to be part of a portfolio, “among other things it should not behave the same way as the other asset classes”.
In the past couple of years, many life insurance carriers have positioned Participating Whole Life insurance products as excellent solution choices. Sun Life, Canada Life and Assumption Life all have unique participating life insurance products which are commanding a lot of consumer attention. Here’s a brief case study done by Sun Life on using their Sun Par Accumulator in a portfolio vs. using a standard GIC.
Here are 4 things you should know about life insurance that position them as unique asset:
When an insured passes away the death benefits are automatically paid to the beneficiaries in cash. Generally speaking there is no tax, commissions, fees, etc. subtracted from the death benefit.
Lack of Volatility
Life insurance policies can be structured such that there is no link to market performance. Thus, your death benefit will not be determined by the volatility of the markets.
The most important thing we do in our roles as life insurance professionals is offer products that provide for a tax-free benefit. Life insurance death benefits are paid in a lump sum and are not included as income by the named beneficiary.
When compared to fixed income products it’s quite possible to have cash value growth in a policy that will surpass the GIC/Fixed Income part of your portfolio.
If you have any questions about this article or would like the assistance of one of our licensed professionals, please call us at 1.416.759.5453 or email us at firstname.lastname@example.org.