Using a Bond For Life Insurance
Some people choose to invest in a bond, which they intend to use as life insurance when they die. This means the payout upon death or withdrawal of funds is dedicated to paying off funeral costs, decreasing debt, and providing for family members.
Investment bonds require a lump sum at the beginning of the period rather than the monthly premium payments for life insurance policies. For those who may have a difficult time keeping up with monthly premiums, but can afford a one-time investment, investment bonds are the way to go.
The hard part, however, of investing in bonds rather than purchasing life insurance is that success hinges on the types of investments made. It is important for investors to diversify their portfolios and not bank on just one fund.
Some investors have the misconception that diversification simply means investing money into more than one company. This misconception can really hurt an investor if all the companies are from the same industry. For example, diversifying investments does not mean putting money into multiple restaurants. It really means investing in restaurants and other industries, such as energy or financials.
The global industry classification standard system (GICS) is used worldwide to divide the economy into 10 different sectors. Investment in a number of these sectors would allow people to benefit from different industries. This helps them in case one industry takes a nosedive. Others could potentially remain strong and pull the investment through.
The 10 GICS general sectors and examples of each include:
· Energy - BP PLC (BP)
· Financials - Lloyds Banking Group (LLOY)
· Materials - BHP Billiton (BHP)
· Industrials - Meggitt PLC (MGGT)
· Utilities - Centrica PLC (CNA)
· Information Technology - Google, Inc. (GOOG)
· Telecommunications Services - BT Group PLC (BT/A)
· Consumer Discretionary - easyJet PLC (EZJ)
· Consumer Staples - Coca Cola Company (KO)
· Health Care - Synergy Health PLC (SYR)
With 10 different sectors to choose from, it should not be too difficult for investors to diversify their investments. Spreading out the money will assure the portfolio will not experiences extreme peaks and valleys as the investment ages. If all the money is invested in just one or two sectors, if those industries fail at the same time, the investor could lose a great deal of money.
Being Flexible With Movement
Once the investment bond is established and money is invested in different places, it is important for the investor and financial adviser to keep an eye on the market. It does not usually cost the investor any money to move the funds around, allowing them to switch around as they see fit. Some companies will charge a fee if too many changes are made in a given time, so it is vital to read the fine print before making any changes.
Just because a set list of investments were made with the initial lump sum, the investor does not need to keep their money in the same places for the rest of the bond's life. Technically speaking, it would be wise for the investor to make changes along the way in response to the traded market.
For example, if a company were to do poorly for any given reason, it would be wise for the investor to pull the money out and invest in something else that is doing better. A financial adviser would best be able to facilitate such moves and provide guidance to investors who wish to make changes. Being willing to change is key to keep the portfolio growing in a positive direction.
Cheap Life Insurance Down the Road
In the long run, a diverse portfolio that fluctuates with the market can provide investors with cheap life insurance. If invested well, the bond portfolio would technically grow beyond the initial investment, providing loved ones with even more money to take care of life insurance costs.
There are no restrictions as to how the money in an investment bond is used once it is paid out. It is up to the discretion of the policyholder and their beneficiaries. As a result, there are many people who turn to investment bonds as a way to make sure they have life cover for their loved ones. The last thing anyone wants to do is leave their family with financial burdens, adding to their stress during a time of grief.
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