Why Consider Life Insurance an Alternative Asset Class?
Last week we met with a client approaching retirement. After a lifetime of building success and achieving financial stability, he worried that retirement was a lateral move. What comes next after years of generating income? What many don’t realize is that retirement is not just about preserving money—it’s about making your assets work for you. That’s where life insurance as an alternative asset becomes essential.
Retirement should be seen as a chance to dedicate more time and resources to what you want to do—whether that’s traveling, writing your memoir, or sustaining your favorite charities. Our client, for example, dreamed of sailing around the world but also wanted to make sure his grandchildren were cared for. This is where life insurance plays a critical role: ensuring that even after the hard work is done, you’ve protected your family and your legacy.
Even some of the most financially savvy people tend to overlook certain asset classes when planning for retirement, and many leave life insurance untapped. But life insurance is actually one of the most efficient options for building, preserving, and transferring wealth.
What Classifies Life Insurance as an Alternative Asset?
Most people only think of cash, stocks, bonds, and real estate when it comes to wealth-building. Those are important asset classes—but life insurance deserves a place on that list too.
Here’s why:
-
Multiple Liquidity Events
Life insurance offers several ways to generate liquidity throughout your lifetime:-
Death benefit – A guaranteed, income-tax-free payout to your beneficiaries.
-
Borrowing against cash value – Tax-advantaged access to money in retirement without liquidating other investments.
-
Life settlements – Policies you no longer need can be sold in the secondary market, often for more than their surrender value (see below).
-
-
Layers of Value
-
Peace of mind today by transferring financial risk to the insurer.
-
Future wealth through cash value growth and a guaranteed death benefit.
-
Few assets provide both immediate protection and long-term value the way insurance does.
-
-
Predictable Costs, Guaranteed Benefits
-
Buy $1 million of guaranteed life insurance, and your heirs will one day receive that amount—tax free.
-
With level premiums or “paid-up” policies, you know exactly what it will cost, unlike stocks or bonds that fluctuate in value.
-
-
Liquidity Compared to Other Assets
-
While you can’t buy your morning coffee with life insurance, it’s often more liquid than real estate, a family business, or retirement accounts.
-
Policy loans or withdrawals can provide retirement income, college funding, or other financial flexibility—while still preserving the death benefit.
-
How Do Life Settlements Enhance Life Insurance as an Alternative Asset?
One of the least understood but most powerful features of life insurance as an alternative asset is the option to sell your policy.
A life settlement allows you to sell an unwanted or unneeded policy to an institutional buyer in the secondary market. In return, you receive a cash payment—often far more than the cash surrender value the insurance company would offer.
High-net-worth individuals use life settlements to:
-
Unlock hidden liquidity later in life.
-
Reallocate funds to new estate planning or charitable strategies.
-
Avoid lapsing or surrendering valuable policies.
👉 Learn more about how life settlements can unlock value from existing policies.
This ability to exit a policy and recover significant cash value is yet another reason life insurance is considered an alternative asset.
How Does Life Insurance Optimize Legacy and Estate Planning?
No other asset works like this: you buy, you die, it pays.
For wealthy families, that certainty means:
-
Estate liquidity to pay taxes without selling prized assets.
-
Confidence that heirs won’t have to scramble or sell assets at a discount.
- Control over how obligations (estate tax, divorce settlements, philanthropy) are funded.
The Bottom Line
Life insurance is considered an alternative asset because it doesn’t behave like traditional investments. Instead, it provides:
-
Guaranteed liquidity at death
-
Tax efficiency for wealth transfer
-
Predictability in both cost and payout
-
Optional liquidity through loans or life settlements
For families approaching retirement, life insurance as an alternative asset can be the bridge between financial security and lasting legacy—helping you enjoy today while protecting tomorrow.
Often the proceeds from a life insurance policy are the largest asset held within a client portfolio, even though the amount paid into it was only a small fraction of that amount. It is that “internal rate of return” that makes the tax-free life insurance policy so attractive as an asset class.
If you want to learn more about how life insurance can preserve your wealth and act as an excellent estate planning tool, speak with one of our experts today.
FAQs: Life Insurance as an Alternative Asset
Q: Why consider life insurance as an alternative asset?
Because it offers tax efficiency, liquidity, and predictability that traditional assets often cannot.
Q: Can life insurance really provide retirement income?
Yes. Policies with cash value allow tax-free borrowing, creating supplemental income in retirement.
Q: Is life insurance only valuable at death?
No. Policies create living benefits through cash value growth, borrowing options, and liquidity planning.
Q: How does it compare to real estate or stocks?
Unlike market-driven assets, life insurance provides guaranteed value, predictable costs, and a built-in safety net.
Take the Next Step
Life insurance as an alternative asset is one of the most overlooked wealth strategies, yet it can be the financial MVP of your retirement and estate plan.
If you’d like to explore how this strategy can preserve your wealth, protect your family, and prepare your heirs, contact us today for a personalized review.
