The insurance industry offers a unique opportunity to create value through private equity players. Over the past several years, PE-backed insurance brokerages and distribution technology providers have seen impressive returns. They have also built dominant positions in the claims-management space and have invested in human resources information systems and benefits administration services. While these investments are typically high-risk, they can also yield attractive returns for investors.
Traditional insurance is another alternative that provides safety and profitable returns. The idea behind this model is that an insurance policy is an investment in your family’s financial security. This is an alternative to investing in stocks, bonds, and real estate, which do not have a predictable ROI. In other words, a traditional insurance policy is like a piggy bank in your house – it doesn’t pay a dividend every time you open it.
Another insurance investment strategy is to invest in a general partnership (GP) that offers lower-risk insurance. These investors buy entire blocks of insurance policies from traditional insurers and assume the risks of billions of dollars of assets. By 2020, these companies will have acquired more than $100 billion in general account liabilities. This growth is likely to accelerate with the low-interest rate environment that is currently present.
Another type of insurance investment is a term life insurance policy. This type of policy does not provide a cash value and is much cheaper than a permanent life policy. This strategy is known as buy-term-invest-rest and is an option to consider if you are interested in maximizing the return on your life insurance investment. If so, a fee-only financial advisor can help you choose the most appropriate term life insurance policy.
Another insurance investment option is an investment in an index or mutual fund. This type of policy earns interest through a variety of investment sub-accounts offered by the insurer. For example, one account may earn interest on a stock index while another earns interest on a bond. The insurer also has a minimum and maximum rate of return, which minimizes severe losses.
If you don’t have other sources of income, investing in a life insurance plan is a great way to ensure your financial security in the future. Even if you never have to claim on the coverage, it can help you meet life’s goals and help you meet financial freedom in your later years. In addition, you can borrow against the cash value in your policy in case you need to.
If you’re considering insurance investment, you should consider the benefits and risks of each option. If you’re not financially comfortable with the risks of investing in life insurance, you might want to consider other types of investment. While life insurance may not be the best choice for you, it can be a good way to protect your loved ones and provide them with a financial security after your death.
