Is a Jumbo Life Insurance Policy the Right Choice For Your Portfolio?

Jumbo life insurance gets its name from its significantly high value. Also known as ‘universal life insurance’, the cover for a jumbo life insurance policy often falls in the range between $1-$100 million.

A strategic part of many HNWs wealth structuring and estate planning, this kind of policy goes beyond a traditional insurance cover to also include an investment component.

How Jumbo Insurance Investment Works?

Where your money is invested depends on the kind of jumbo life insurance policy you choose:

  1. Fixed jumbo life insurance: When you sign up for this, you agree to the insurer’s fixed rate of return. Your cash goes into an account that earns this fixed rate of interest year after year.
  2. Index jumbo life insurance: The invested premium in this kind of policy goes into an account. The returns from this account are linked to stock market returns through popular high-performing indexes. One of the most remarkable features of this kind of policy is that you are guaranteed against stock market losses – but your gains are capped at a pre-determined rate as well.
  3. Variable jumbo life insurance: The most diversified option, when you purchase a variable policy, your money is invested into a portfolio of assets like mutual funds, shares, and ETFs. Consequently, these are more volatile.

Who Should Get a Jumbo Policy?

HNWs are typically the target market for these policies because of the high premium amount, and also because of the kind of gains and wealth structuring advantages it offers.

As a high-yield investment opportunity, universal life insurance policies can be attractive. However, it is important to consider your goals and objectives and choose the right kind of policy for your needs. Not every policy is created equal, and depending on your appetite for risk, you need to carefully consider which type of insurance is suitable for your portfolio.

Benefits and risks

There are many benefits a jumbo life insurance brings – but depending on your portfolio and need, you need to be discerning in the policy you eventually choose:

  1. Creates liquidity
  2. Compensates for inheritance tax
  3. Provides security to complex cases of succession planning
  4. Presents a valuable option for diversifying your portfolio

The advantages are clear – it’s an exclusive opportunity for high returns. There’s always a minimum guaranteed annual return, and jumbo life insurance is an easy road to premium financing. In fact, private banks often finance these policies because of the guaranteed payout at maturity.

For portfolios that need more liquidity but have enough assets, the jumbo life insurance policy gives an additional benefit as it is paid out in cash.

The risks here are those inherent to any high-value investments. Policies require stringent underwriting, and on the basis of various checks, the policy offered to you may not be as attractive as you initially thought.

Overall, universal or jumbo life insurance policies are a great option to diversify your portfolio, structure your wealth and plan your estate – as long as you are cognizant of the changes it will bring, and whether it will get you closer to your goals.

To find out more about jumbo life insurance and to see whether this is the right fit for your portfolio, get in touch with us.