Viewing life insurance as an asset class

As yields available to conservative investors have continued to fall, some advisors are beginning to look at life insurance as an asset class and not just a risk management product. Take Bill Black, with W.H. Black & Co. in Winter Park, Fla. At 76 years old, one of Black’s clients considered transferring $127,590 of cash value to a new policy that provided a $231,830 death benefit. The client initially considered taking the funds and investing them, so Black ran several illustrations that showed the IRR for different life expectancies. “If he lives to age 85, he would have to earn 6.15% annually after taxes on that money to have it grow to an amount equal to the life insurance,” said Black. “But let’s push him out five years beyond life expectancy. He would have to earn 4.06% per year after taxes to have that $127,000 grow to the $231,830 in life insurance.”