If you’re like most people in the world today, you probably prioritise defensive financial strategies over more aggressive, risky strategies that could either make you very wealthy very quickly or make you homeless even faster. A defensive financial portfolio can help you get through difficult times more easily, without having to sell your home or pawn your valuables. One of the cornerstones of a solid defensive portfolio is a comprehensive life insurance policy, but how does such a policy fit into a broader defensive portfolio comprised of various financial instruments and asset classes?
What is a Defensive Financial Portfolio?
The core principles of defensive investing are:
- Capital Preservation – A defensive portfolio should focus on investment classes with a low risk of capital loss. Government bonds, blue-chip corporate bonds and some blue-chip shares are often included in defensive investment portfolios for this reason.
- Risk Mitigation – If you’re putting together a comprehensive defensive portfolio, you must identify the risks that you cannot avoid in life, particularly any that could negatively impact your finances. Your portfolio should include asset classes and tools to mitigate these risks.
- Steady Returns – Capital gains are fairly low on the list of priorities when putting together a defensive portfolio. Instead, try to acquire assets that offer a steady, reliable income.
With a reliable income and little to no chance of losing your capital, a well-designed defensive portfolio will put you in a very strong position financially.
Term Life Insurance and Risk Mitigation
Some countries have both term and whole life insurance available, while in others, there’s just term life insurance. Australia is an example of a country where only term life policies may be purchased, whereas the United Kingdom is a country where both types of coverage can be purchased. A term life insurance policy has no investment portion; it simply pays a lump sum to beneficiaries in the event of the policyholder’s passing. This type of life insurance can be used to mitigate the financial risk that your early passing might impose on your family. With optional coverage such as critical illness coverage and income protection insurance added, a term life insurance policy can mitigate all of the potentially most devastating financial risks that you and your family may encounter in the future.
Strategic Integration: Picking a Policy That’s Right for Your Portfolio and Needs
Many insurers offer customisable coverage for term life insurance policies, which means you can choose the level of coverage and specific components you wish to include in your policy. This makes it much easier to build a policy that fits your portfolio profile and needs perfectly. If you don’t have access to customisable life insurance coverage, focus firstly on the amount you wish your beneficiaries to receive and secondly on the length of time it will take the insurer to pay out, when you’re choosing a policy.
Balancing Future Growth With Ongoing Security Concerns
It’s a good idea to revisit your life insurance considerations annually, to ensure you still have the best type of policy for your needs. You may also wish to adjust the risk parameters of your investment portfolio in response to fluctuations in the value of your assets and liabilities.
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