Diversification: The missing link in affluent families' insurance portfolios
When a family has more than $5 million of insurance assets, diversification of their insurance portfolio becomes crucial. It's a well known fact for the acquisition of investment assets yet it's rarely considered in the acquisition of insurance assets. At the same time, many of these families' insurance portfolios are actually larger than their investment portfolios. They have more risk yet are offered less wisdom around the importance of diversification.
Insurance policy performance can vary from year to year, company to company and also based on the type of policy purchased. A prudent way to mitigate risk is to diversify into several manufacturers and possibly several product types.
We believe the cornerstone of capitalism is competition. When various insurance manufacturers compete for your clients' business, both strengths and weaknesses are revealed. We have all seen what can happen when an affluent investor is 100% loyal to the stock of a single company.
Although diversification may help mitigate risk, it does not ensure a profit or protect against loss in an economically challenged market.