Modern portfolio theory says that rebalancing investment portfolios is a sound investment practice.  Along with the necessity for rebalancing is the need for a broad mix of assets in a portfolio, and as such, broadening an asset allocation, life insurance, and annuities should be a consideration—as both an asset and necessary investment and financial planning tool. 

Unfortunately, too few recognize life insurance and annuities as "assets" on the balance sheet or in an asset allocation model, which is odd since fixed permanent life insurance or annuities act much like fixed-income securities.  They have a low correlation to stocks but without the volatility associated with marketable securities, and unlike most holdings typically found in an allocation model, life insurance and annuities have unique guarantee features and benefits, such as:

• The ultimate value of the asset or income stream is a known variable.

• The internal rate of return can be calculated for any point in the future.

• Fluctuations in the stock market or interest rates won't impact the ultimate value.

• They are readily convertible into cash without additional costs.

• Growth in the asset's value is either income tax-deferred or tax-free.

• They can provide tax-free benefits while alive or pass without the delay or expense of probate at death.

One of the best ways for you to incorporate life insurance and annuities in a client's asset allocation is Long-Term Care (LTC) Planning.  Not only can life insurance and annuities be included as part of the portfolio, but they can also be leveraged to provide LTC benefits and mitigate future risks should your client one day need care.  Repositioning assets into today's "hybrid" LTC Planning solutions is driving their popularity, and their inclusion as an asset class in the asset allocation further makes them a logical planning solution.

A Closer Look At Today's "Hybrid" Solutions for Long-Term Care Planning

• Today's "fixed" hybrid solutions carry no market risk and are generally available as a LTC/Life Insurance Hybrids or a LTC/Annuity Hybrids.  Each provides different features and benefits. 

• There are various ways to fund a Hybrid solution, such as cash, low-yield bank deposits, accumulated cash values from existing non-qualified life/annuity contracts, and even efficient ways to use assets from retirement assets in a 401(k), IRA, etc.

• LTC Benefits are guaranteed for life and are generally tax-free based on current tax law, either when used to pay LTC expenses or as a death benefit to your beneficiaries.  Annuity death benefits and qualified funds ARE taxable to beneficiaries.

• These solutions offer a guaranteed funding amount and duration to align with retirement income planning.  There is no risk of additional funding requirements or potential for increased future costs.

• Hybrid underwriting standards are more relaxed, and some are even guarantee-issue.

• It's common for those with LTC insurance policies to opt for hybrid solutions that offer a better value proposition, eliminate ongoing payments, and end the seemingly continuous rate increase cycle.

When clients understand that life insurance and annuities are an asset class, they can easily see why leveraging them in a portfolio provides peace of mind and ensures multi-generational financial security.