I have been hearing on the local radio stations an advertisement for a life insurance agent who says that a client of his in the law profession asked him to set up an additional $1 Million dollar life policy for him, representing the amount lost in the current financial crisis. This sounds like a panicked reaction to a devastating loss, but it also makes me think – what is the point of taking out a life policy – the person would never get to use it!
There are many vessels available to consumers to insuring their property. There is home insurance, auto insurance, business insurances, life insurance, title insurance and health insurance but have you ever considered investment insurance? Think about it – guarantees on your money. Death guarantees, deposit guarantees at maturity, resets. One avenue for investing your money is to use Mutual Funds. These aren’t are risky as the stock market, but as part of a well diversified portfolio, they provide a fantastic vessel for making money – oh wait…the market has crashed. There are some people out there who aren’t as stressed as others – Some people have their money in a type of investment vessel called Guaranteed Income funds (a.k.a seg funds, annuities etc).
They offer the same fund options as most mutual fund companies, but the key is that you pay a bit more to ensure:
a) deposit account guarantee – the contract is typically 10 years and you can opt to have 75% guaranteed or even 100%. Consider your funds last year vs this year. The news has reported that trillions of dollars have been lost in market pull backs that will take years of robust growth to return… In a seg fund, it wouldn’t really bother you, because your deposit balance is insured!
b) Resets – many funds offer annual resets – as the value grows, the guaranteed value also grows, reflecting the hight value of your investment.
c) Death benefits – Guaranteed investment funds are life insurance products – as such they have beneficiaries – they can pass your estate and go directly to the people you want to have the money (and not the taxman!)
We have all taken a blow in this economic downturn – some more than others. It is easy to fall into panic mode and become reactive – i say stop yourself, take an assessment of the situation and proactively seek out a solution that make long and short term sense.