Happily, those younger ultra-high-net-worth investors have an attractive option for part of their portfolio that their older counterparts probably don't - allocation into an instrument that behaves like a zero-coupon bond ... put in $X now, and over a long time span the maturity value will represent yield comparable to respectable fixed-income benchmarks. Unlike the zero-coupon bond, however, this instrument is a wrapper around a professionally managed conservatively allocated strategically laddered bond fund, and the wrapper comes with benefits that naked zeroes don't have. The wrapper is a medically underwritten cash value life insurance policy, which means:
- Accelerated maturity in the event of premature death
Wealth accumulation plans, when done well, are structured to reliably deliver a targeted increase in a client's wealth over a long period of time. Even better are plans that address the unlikely circumstance of the time horizon suddenly being cut short; providing that hedge is a task to which life insurance is uniquely suited. - No tax liability on "phantom interest"
Unless comprised of relatively lower-yielding Treasury issues or held inside a qualified plan, zeros generate an annual tax liability on the imputed interest earned even though no interest income is actually received.)A life insurance policy's cash value increases are not taxed unless actually withdrawn from the contract (and even then, possibly not until basis has been returned.) - No tax liability if held to "maturity"
When paid out as a death benefit, the proceeds of the life insurance policy are income-tax free to the beneficiaries, even though increases in the contract's cash values were tax-deferred. - Discretion and creditor protection
The cash value balances of a life insurance contract do not appear on a brokerage account statement; nor are policy values subject to routine reporting to the IRS. In most jurisdictions, a cash value life insurance enjoys significant creditor protection relative to other assets owned outright. And unlike most other assets owned outright at death, the death benefit proceeds of a life insurance policy will not be subject to probate.
