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Jan 1, 2011 12:00 PM
Hedging Your Bets
Using life insurance assets to stabilize an investment portfolio
Life insurance is unique among types of insurance in that it insures against an event (death) that will occur as opposed to an event that may occur. But, although death is a certainty, individuals buy life insurance to hedge against the time when death will occur. It's this focus on timing that makes the death benefit provided by life insurance different from other asset classes. That is, the timing of death is unrelated to the ups and downs of the economic market and helps to stabilize an individual's portfolio of assets. Given the economic uncertainty we saw in 2010, more and more people are incorporating life insurance into their investment portfolio. But careful management of these policies is required to maximize their return.
Individuals use various strategies as a hedge against uncertain future events. For example, farmers or ranchers may buy or sell commodity futures as a hedge to protect their potential profit in the face of price fluctuations for their crops or livestock. Investors may buy puts to lock in a profit on securities. And, although the event of death is a certainty, many individuals buy life insurance to hedge against the uncertainty as to when death will occur. As estate planners, we must help our clients plan for a death at the “wrong” time.
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Topics of Interest
| Estate Tax | Donor Advised Funds |
| GSTs | Family Offices |
| Private Foundations | Life Insurance |
| 2010 Tax Act News | Industry Trends Surveys |
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Topics of Interest
| Estate Tax | Donor Advised Funds |
| GSTs | Family Offices |
| Private Foundations | Life Insurance |
| 2010 Tax Act News | Industry Trends Surveys |
E-Newsletter Signup
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