Using Life Insurance as a Portfolio Preservation Asset

We all understand that life has at least two certainties: death and taxes. I’ll add one more: market downturns. Despite the wealth of information available and excellent portfolio strategies employed, events like the subprime market and Brexit will occur and create volatility in an equity-based portfolio. Therefore, one of the most requested strategies from high net worth clients is how to smooth out their retirement cash flow during market downturns. While acting in a fiduciary standard, one strategy to consider is cash value life insurance.

Many retirees have their assets consolidated in two places: the value of their home and their investment portfolio. If most of those retirement assets are invested in the market and a downturn occurs, the retirees fixed income could be impacted. Even worse, those withdrawals may need to be taken from principal, which will affect potential portfolio recovery when markets upswing. To help smooth this situation out, we find that adding cash value life insurance to an overall portfolio – an asset whose performance is not tied directly to the market – can provide an excellent source of income during market downturns.

The strategy is simple: when the market is down, retirement income should be taken from the cash values in a non-correlated, tax-efficient cash value life insurance policy. This strategy seeks to preserve equity-based assets, allowing for the potential recovery of those same assets when markets bounce back. When markets have recovered to the investor’s liking, you may resume taking withdrawals from your stock portfolio and allow the life insurance cash values to build back up to be used during the next market recession.

The primary purpose of life insurance is to provide a death benefit to one’s family however, life insurance can also be used as a risk management tool. Utilizing cash value life insurance can be strategic in smoothing out retirement income and preserving your market-based portfolio in times of financial uncertainty.

Contact a Carson Wealth Advisor for more information.

Get in Touch

In just minutes we can get to know your situation, then connect you with an advisor committed to helping you pursue true wealth.

Contact Us
Business professional using his tablet to check his financial numbers

401(k) Calculator

Determine how your retirement account compares to what you may need in retirement.

Get Started