Income and life protection solutions as an alternative asset class 

Portfolio diversification is a strong risk mitigation strategy in a volatile environment. Diversification enhances potential returns, promotes stability, and aligns investments with risk tolerance and objectives. 

As an asset class, life protection solutions, including income plans, are more stable investments when compared to securities investments. Income plans acts as a dependable, relatively low risk counterbalance while increasing the diversity of any portfolio. The diversification is two-fold, firstly, as an addition to the insured individual’s own portfolio and secondly, the policy returns are generated by investments across very broadly asset classes. 

The existence of secondary markets in securities means equities and bonds are more vulnerable to capital erosion; prices can fluctuate greatly and unpredictably. 

Income plans, on the other hand, never have an “over the counter” (OTC) secondary trading market. Not having a secondary market eliminates price instability due to investment sentiments or mark-to-market volatilities. 

The guaranteed floor of income plans foster stability and encourage its inclusion in long-term investment strategies – both as a reservoir of guaranteed liquidity and an asset of stable cash value. 

Post a tailored accumulation period, income plans are a guaranteed source of annual cash flow. By investing in income plans, clients create a source of regular income/liquidity in addition to the typical income streams of employment, real estate rental, business ventures, and equities dividends etc. Moreover, the dividends can be accumulated with the insurer for occasional non-guaranteed interest (as determined by the insurer) to achieve potentially higher returns in the long run.

It’s worth highlighting that there is flexibility in the withdrawal of that cash – it can be in a lump sum or instalments, giving you extra control over its accessibility and versatility. 

Choice is also readily available in premium payments, which can be in lump sum by the client or through private bank funding, clients can otherwise choose from multi-pay options.

Legacy is the enduring impact and influence of an individual. It encompasses their achievements, values, and traditions. Legacy – whether as an institutional gift or as inheritance – is an asset that has the potential to shape future generations. As such, it needs to be carefully planned and funded to ensure undisrupted continuity. 

In many jurisdictions, income plans aren’t included in the probate process (which can take weeks, months or even years) and provide instant and continuous liquidity when clients’ families need it most.

Income plans offer both geographic and generational portability, making them highly versatile and adaptable across different locations and generations. 

Geographically, life protection solutions can generally be transferred seamlessly when individuals move or travel to different regions or countries, ensuring uninterrupted coverage. This flexibility enables clients to maintain their financial security and protect their loved ones, irrespective of their location. 

Some life protection solutions also have generational portability, for example, they can be passed down from one generation to the next (for up to 100 years). This benefit ensures that families can preserve their asset and provide ongoing protection for descendants, creating a lasting financial safety net that transcends time.

Whilst this particular benefit is jurisdiction dependant, under a number of legislative frameworks, the tax treatment for life protection solutions is different from capital assets and therefore not subject to inheritance taxes. In those jurisdictions, this benefit means assets can be transferred intergenerationally without the risk of capital erosion.