Life Insurance as an Asset Class
September 25, 2015 by Charlie Gipple, Senior VP of Sales and Marketing, Partners Advantage Insurance Services
Life insurance can provide a financial portfolio with upside potential, reduce risk, and add some predictability through the guaranteed death benefit. When it’s structured properly, life insurance can offer a predictable value and a reliable means to transfer financial legacies through a guaranteed death benefit with market-driven growth potential and tax efficiencies.
Life insurance is an opportunity to add a new asset class to a client’s portfolio that has the following attributes upon their death:
- A known death benefit that passes onto the beneficiaries and doesn’t correlate with interest rates or the market.
- Leverage: Many times, the death benefit that’s paid to the beneficiaries can be multiples of the actual premiums paid by the owner/insured.
- Immediate Payout: The declared death benefit is paid out immediately upon the death of the insured. It isn’t subject to any particular “market cycle” like with other asset classes.
- The death benefit is free of income taxation to the beneficiaries.
The Living Benefit Asset
Cash value life insurance has the ability to build cash value that is viewed as an “asset” on a client’s balance sheet while they’re still living. This type of life insurance has living benefits for the client that they can use throughout their lifetime. Although the purchase of life insurance has to be justified by a death benefit need, many times the client buys life insurance with the anticipation that they will eventually utilize the cash value in the form of tax-free loans.
Life Insurance Should Be Viewed as an Asset
Permanent, cash value life insurance should be viewed as an “asset” on a client’s balance sheet while they’re living. It has the ability to build cash value, provide living benefits and a death benefit. Financial professionals need to help their clients better understand that life insurance isn’t solely an “expense,” but instead an asset on a personal balance sheet.