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Asset allocation is intended to minimize financial market risk through portfolio diversification. Most wealth management firms stop at traditional investments such as equities, bonds and commodities, but I believe it is important to include life insurance as a stand-alone asset class. Why?
It is impossible to do an asset allocation with long term investments and be fully prepared for unforeseen liquidity events, such as death or disability. Among other benefits, the immediate liquidity provided by life insurance protection allows portfolios to continue working, as planned, without the need for forced liquidations.
If you had a $1,000,000 growth portfolio in 2007, and your family incurred a forced liquidation in 2009, when much of the equities market was down 50%, the cost of that forced liquidity may have been as much as $500,000. Even more if the monies were forced out of a retirement plan or traditional IRA with income tax and premature distribution penalties. Life insurance can act as portfolio insurance by protecting your portfolio against a forced liquidation in case of a premature death.
An alternative to insuring these risks is to allocate more conservatively with higher liquidity, but the opportunity cost of doing so may be significant, if not prohibitive.
It doesn't matter if you have or need term insurance, variable life, variable universal life, universal, whole life, or equity indexed life insurance. Any of them are a part, if not a very significant part, of your "wealth". They need to be accounted for, and carefully managed, as the unique asset class they represent.
Today's lower cost policies can make a lot of sense for individuals if there is a genuine need for life insurance protection but only by integrating these unique assets into a comprehensive plan of financial and portfolio management.
For business owners, sophisticated life insurance transactions can provide multiple solutions to everyday issues such as estate planning, business insurance needs, buy-sell planning and non-qualified deferred compensation. If you need objective expertise on existing or prospective life insurance contracts, I can help you on a fee basis, and thereby avoid sales pressure or potential conflicts of interest.