When you ask most clients what they think of when you mention rebalancing, you generally get answers around keeping their portfolios neatly divided between stocks and bonds to maintain the right asset allocation and reduce their risk.
But, in the era of the 401k generation and the DIY retirement plan, there’s another, often overlooked asset that can be an important source of income and security at critical stages in their life: life insurance.
Life insurance is the unsung hero of financial planning. It can provide resources to a client that can be otherwise hard to access or more expensive from other sources. That makes a regular assessment of life insurance an important part of the rebalancing process for your clients.
Just like stocks and bonds, life insurance needs to be periodically analyzed and rebalanced to make sure a client has enough of it and is using its assets properly. A rebalance of life insurance could mean buying more or accessing the insurance you have for cash you need to pay for an unexpected expense or a planned expenditure like college, long-term care or paying down a mortgage.
The myth about life insurance is that it’s only for high earners who use it to protect against their families and business in the event of their premature death. In fact, there’s a life insurance product for almost any need. Here are just some of the ways life insurance can be used at life’s important junctures:
- First married: In the early part of your family life, it can be used to ensure financial stability for both partners of a marriage or civil union and, as it accumulates assets, can help pay down a mortgage or help with other debts;
- Expanding families: If you have children, it can begin to build up resources for college expenses;
- Divorce: In the event of a divorce, it can remain in place for needs of any children;
- Retirement planning: Retirement is the obvious need for a life insurance product that can be used in many ways that can include the ability to borrow from its cash value and selling it on the secondary market;
- Estate planning: This is using life insurance not only to provide assets to heirs, but to help provide cash for medical costs and other end-of-life expenses.
Typically, a rebalance of a client’s portfolio happens only once or twice per year. This is the right time to assess life insurance and keep track of the cash they have in them and the strategy for accessing them at the predictable moments like the ones above.
Clients can access cash by borrowing from life insurance, a strategy that can have the significant advantages of being quickly accomplished with no credit check, having an interest rate that is lower than a traditional bank loan or a credit card, and clients can repay the loan on their own schedule. If they don’t repay it, it’s deducted from the policy’s death benefit.
Another option for clients is GWG Life’s Life Care Xchange® that can be used to exchange a policy for assets. It provides four distinct options a policy owner can choose from to address their financial goals:
- Lump-Sum Cash Payment to enhance income and assets
- Long-Term Care Benefit Account for tax-free monthly long-term care payments
- Xchange Annuity to guarantee a lifetime income stream
- Retained Death Benefit to protect loved ones with no more premium payment
Each option is designed to provide the maximum value for the policy, and provide the best financial vehicle to address the unique needs of the policy owner.
It’s always helpful to remind clients that a life insurance policy is an asset that provides them with the same personal property rights as a mortgage or any other investment. That means the owner can sell their life insurance policy for its highest market value. According to the American Council of Life Insurers (ACLI) nine out of 10 polices miss out on this benefit, either letting it lapse or surrendering it to the insurer before ever paying out a death benefit. Any rebalancing should include that reminder. As a trusted advisor, you have a responsibility to make sure your clients understand the considerable value they may be holding in their life insurance to make sure they don’t needlessly let it lapse or surrender it.
Balanced properly, life insurance products will play an essential role in helping clients manage their personal wealth, solve their money problems of today and plan for their future.