The value of an investment portfolio is subject to market fluctuations. The amount of wealth ultimately transferred to heirs is based on the value of an individual’s investment portfolio at an indeterminate point in the future. Depending on the performance of the investment portfolio, one’s beneficiaries may receive more or less than expected.
Many people remain uneasy about the financial markets after the 2008 market crash. A badly timed down market can devastate a planned legacy for years. The chart below details market fluctuations over a 20 year period, based on the S&P 500® Index, including dividends and before income taxes. Although the average return for the period is 7.16%, because of the sequence of
returns, the cumulative return is 150 basis points lower at 5.62%.
MITIGATING MARKET FLUCTUATIONS
Life insurance is a unique asset in that the death benefit risk is borne by the life insurance carrier, which pays the death benefit in full at the event of death no matter what the timing. As a result, life insurance can provide a death benefit that is uncorrelated with other sectors of the investment marketplace, such as equities or bonds. In other words, the death benefit is based on the event of death — not a market event that can cause a downturn in value.
Life insurance is an asset that can ensure that there is an inheritance to pass on, regardless of how other assets perform. By allocating a small portion of one’s portfolio each year to life insurance, individuals can smooth out the volatility in their portfolio and safeguard their desired legacy.
To learn more about Life Insurance as an Asset, download our free Info Sheet HERE.
