Can insurance be an asset class?

The strategic use of life insurance as part of your overall financial strategy may help you achieve your goals and objectives. Permanent life insurance, as an asset class, is a strategy that can help diversify your portfolio. It can be used to grow and protect your family’s wealth. It’s important to understand how it works so that we can explore if it’s an option that would be of benefit to you. Check out this video to learn more.

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Video transcript

Permanent life insurance is typically looked at as an estate planning tool, but it can also be considered as a way to help diversify your investment portfolio. When deciding the asset allocation for your investment portfolio, typically, you are deciding what percentage will be in: 

  • Cash and cash equivalents
  • Equities
  • Fixed income

By mixing your investments across these three categories, you can diversify your portfolio.

Permanent life insurance as an asset class

Instead of a portion of your portfolio being dedicated to fixed income, you can use permanent insurance to cover this asset class. When you purchase permanent insurance, it works similarly to an investment, as a portion of your premiums are invested and grow over time within the policy.

These assets are professionally managed and largely invested in fixed income investments. This is why it is easily comparable to traditional fixed income. The difference, and where it has the biggest benefit for the investor, is how these are treated from a tax perspective.

What are the tax advantages of permanent life insurance?

There are tax advantages with permanent life insurance. Simply put, you will pay less tax on the same investment if you purchase permanent life insurance. This means you will have more money in the end, all while covering the primary goal, which was to diversify your investment portfolio.

Working with an advisor

There are different types of permanent insurance to choose from, all with many elements to consider. So, it’s always best to speak to a professional when assessing this strategy. Looking at the future value of your money in both these scenarios and your ultimate investment goals will help decide if this strategy is right for you.