Life Insurance As An Asset Class – What You Stand To Gain

life-insurance-as-an-asset-class-example-1 An asset class describes a particular kind of investment. The types of investments that make an asset class include property, cash or even shares. Different asset classes carry with them different levels of risk. The more unpredictable an asset class is, the higher the level of risk it attracts. This higher level of risk, however, means that higher returns should be expected. When making a collection of your financial assets, also known as portfolio, it is argued that you should not ignore your life insurance as an asset class.

Diversifying

It is important that when making investments you plan to diversify the investments, as this helps in reducing the risks. You can diversify your investments by purchasing shares from different companies and by investing in different asset classes. When making a decision to invest in an asset class, you will normally check the type of investment and how it is linked to risk and return. In Australia, the main asset classes include cash, Australian and international shares, fixed interest, direct property and listed Australian and international properties.

Types Of Asset Classes

Fixed interest and cash investments are grouped in the defensive asset class. Fixed interest may include government and corporate bonds. These assets have a lower risk with lower returns in the long term. Australian and international shares and property are considered in the growth asset class. In the short term, they are very unpredictable, but may give you higher gains in the long term.

Why Life Insurance

When you take out life insurance, there is normally a steady increase in the cash value of your policy. This steady growth coupled with the death benefits can help enhance your portfolio’s rate of return. Life insurance can be treated in the portfolio as fixed income. In most cases, the cash value of life insurance does not behave the same as stocks and bonds when there is a financial crisis. Once you include life insurance with bonds in your portfolio, you will find that the returns on life insurance will be higher than bonds as time goes by, and the risks associated with the cash value of life insurance will be lower.

Benefits

Including your life insurance as an asset class is advised because the rate of return is usually higher than that for bonds, and the proceeds from the insurance are awarded to beneficiaries without incurring income tax. You can also borrow against your life insurance without the burden of taxation. In the event that you are unable to repay your loan, the money will be deducted from your death benefit. Visit us for more information on how to cover your personal insurance.

Wealth Transfer

When you are planning your wealth transfer, you should consider life insurance as an asset class. This is because in the event of death, a known death benefit amount will be paid out to your beneficiaries. The death benefit may be unaffected by the performance of the financial market, and dividing the benefit among the beneficiaries is not an uphill task as there are instructions available from you as to who gets what. The death benefit will also be paid out to your beneficiaries without incurring federal estate taxes, which are subjected to the policyholder’s estate.

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