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IN THE KNOW NOVEMBER 2011

TOOLS YOU CAN USE

Life Insurance as an Asset Class


Since 2008, the financial and economic landscape can be summed up in one word - uncertain. The capital markets have not provided a predictable, safe haven for investment dollars, which has led both private and institutional investors to seek alternative asset classes. Spending several years on the trading desk of one of the worlds largest investments banks provided us with tremendous insight into an emerging asset class- life insurance. We witnessed investors purchase more than $50 billion worth of death benefit during our four years on Wall Street.

3333 Piedmont Road Suite 2010 Atlanta, GA 30305 ktucker@southcapgroup.com 404-991-7075

Kav Tucker Principal

Why invest in life insurance?

Tax favored status Immune to volatility of equity market Guaranteed universal life contracts are immune to interest rate risk Provides principal protection Provides attractive yield Many affluent families share the same favorable view of life insurance as institutional investors. Life insurance has graduated from acting solely as a safety net for families to now being utilized proactively within the portfolios of high net worth families. It is a wealth transfer tool that when properly structured, can provide a family with equity-like returns and bond-like risk.
Internal Rate of Return on Death Benefit
Life Expectancy 46.37 % Tax Adjusted IRR % IRR

If you look at this in practice here are some sample returns that a client could experience by placing a portion of their investment assets into life insurance premium. We recently worked with a client with a $20 million estate who was considering purchasing a $5,000,000 life insurance policy. The client was 70 years old and in reasonably good health. We were able to obtain a preferred offer from an A+ rated carrier and his annual premium was $138,758 per year which guarantees the policy to age 125. If death occurs at age 86 (average life expectancy for 70 year old clients) the IRR on the premium paid is 9.02%. This equates to having to earn 12.52 in a taxable account to equal the benefits of the life insurance policy. Even if the client lives five years beyond life expectancy to age 91 the IRR is 4.67%, taxable equivelant of 6.49%.

High Limit Disability


We continue to successfully assist our clients with their high limit disability cases. Most recently, we secured coverage for three professional golfers. Your clients need to protect potential future earnings and non-guaranteed contracts. Teams also need to protect key players. SouthCap can assist you with coverage design and specialty market access. Most athletes and high earners have either underinsured their ability to earn an income or neglected to insure it at all. Now is a great time to initiate a conversation about disability insurance.

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824 W. Superior Suite 210 Chicago, IL 60642 lkaplan@southcapgroup.com 312-563-1100

Luke Kaplan Principal

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