According to the US-based Financial Industry Regulatory Authority (FINRA), your portfolio of assets should include different varieties of asset classes, such as bonds, stock, real estate, cash and cash equivalents. You can either do this directly or indirectly (through funds investing in securities). This will help moderate your investment risk by spreading it out, especially since different investment categories experience varied responses to changing political and economic conditions.
However, you shouldn't be restricted to just this group of assets. Why not also consider life insurance as an asset class.
Advantages Of Life Insurance As An Asset
Compared to many other assets, life coverage is much more predictable even in unpredictable economic situations. Even if your real estate investments don't produce satisfactory returns, you can still be assured that your family will get the guaranteed benefits from your insurer. In fact, the stability of this asset class makes it even stronger than stocks, which may fluctuate constantly.
Obviously, life cover will serve you much better in wealth transfer planning. One key reason for this is because you can take advantage of various tax concessions that ensure beneficiaries benefit as much as possible. An example of this is the exemption of CGT (Capital Gains Tax) on benefit payments as indicated by the Income Tax Assessment Act (ITAA) 1997, section 118-300. You can hardly get comparable tax concessions in other asset classes, which experience reductions in the net returns after taxation.
Another favorable aspect of life insurance as a wealth transfer planning tool is the fact that you can nominate your preferred beneficiaries. The insurance company is then obliged to comply with your nomination. This effectively eliminates any form of controversy that may arise at the time of benefit payment. Such assets as stocks and real estate cannot easily compare with this. Serious controversies may arise regarding ownership of the assets once you pass on, which may deprive your intended beneficiary of his/her wealth.
Furthermore, with life insurance, you are sure that your investment meets all the established regulatory standards. As long as you abide by the clearly stated guidelines from a registered insurance company, you are sure to comply with all tax directives and all other applicable laws. On the other hand, you may not have such clear cut directions when investing in other asset classes. You may face hidden administrative charges or unplanned maintenance costs that can deplete the value of your investment.
For someone who may not have the necessary expertise to manage a wide portfolio of assets, it's always wise to invest through specialized funds. This is the same reasoning why you should also purchase life cover for your wealth transfer planning, since the insurance companies are specialists in this regard. Based on their long term experience handling life insurance policies, they have developed numerous features to help policy holders cater to the financial needs of their dependants. One such feature is the financial planning service aimed at guiding beneficiaries in competent management of funds. Various insurance companies also provide benefit payments in installments, which is helpful to beneficiaries who may not properly manage lump sum payments.
Kerrie Peacock always keeps up to date with developments within the personal insurance industry. She offers useful advice to help you get the greatest benefits from life coverage. To get more insight on a cover that suits you, visit www.mecovered.com.au/life-insurance-as-an-asset-class.