The Insurance Opportunity no one is Talking About
The subject of life insurance is always controversial. Everyone needs it, no one wants it, agents oversell it, illustrations are to aggressive and on and on. To add more fuel to the fire, just try discussing life insurance as an “investment” opportunity. Domestic variable life policies are laden with layers of costs that often make them underperformers while indexed policies may show promise, they also have indexing formulas that few of us can understand and trust. Further, all these policies have limitations that inhibit true investors. Enter the private placement life insurance contract which, for many years, has attempted to overcome many of the issues of investment quality and tax-free accumulation via life insurance contract more widely accepted. While there has been modest success, there are many limitations to current offerings that keep broader acceptance at bay.
In order to make insurance an attractive “investment” a number of issues need to be addressed and considered. Designing the “perfect” policy for consumers entails significant tweaking. First, a serious investor, with serious wealth will want to invest enough capital for the policy to be relevant to his overall portfolio. Otherwise, why bother? The issue is insurance “capacity”. The fact of limited underwriting capacity is seldom discussed because it’s seldom an issue. However, with a significant investment in a private placement policy, capacity can suddenly become an issue. Not only may the policy consume all available capacity, but that same wealth investor may be in need of traditional insurance for estate liquidity reasons and will be prevented from its acquisition. Insurance capacity limitations are real and must be addressed by any serious advisor.
Second, since most of the best policies are based in foreign jurisdictions for any number of reasons, there is often a requirement to have the insured apply and be medically examined somewhere other than on U. S. soil. While some try to use foreign embassies as safe havens, the rigorous hoop jumping makes skeptics of too many. Attempting to get a high net worth client to fly to the Bahamas to sign an insurance application and take a medical exam is often too much to ask. This hurdle is a high one to leap.
Third, while may of the current offerings allow a wide selection of hedge funds and alternative investments, the high net worth investor generally wants to actually select the precise investment strategy that makes him happy (and rich). He wants as much control over asset mix as allowed by law. So, while the current offerings in the market are above average, they usually aren’t flexible enough to please the discerning and controlling master of the universe.
Can these problems be fixed? Yes. It’s been done.
There is currently a private placement offering that is U. S. compliant where the owner is not the insured and, therefore, is not underwritten. That means the owner can apply for the policy domestically, doesn’t undergo a physical exam, doesn’t have to jump through a thousand hoops and never leaves the country. The investment platform is open architecture and allows for the purchase of virtually any asset or asset class within the limits of the investor control doctrine. Creative structuring of the arrangement can allow for an income tax free money box that can last for multi-generations without compromising individual insurance capacity or precluding other family planning.
The price to play is not insignificant at $5 million minimum but, then, who else do you think this arrangement would be suitable for but those who can pay the price of entry? Not perfect, but getting there.
Contact Two Hawks Consulting to find out more about available the insurance opportunity that might be right for you.