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How many clubs are in your golf bag?

Toward the end of March, I received the annual renewal packet from my casualty insurance company. I have a bundled package, which covers property, automobile and excess liability. Skimming through the policy, I was reminded how complex it was. And also how much I needed it.

The most important aspect of evaluating any insurance company is its strength. And the best measurement of that, of course, is their ability to pay claims. There are several organizations that can provide you with the strength of insurance companies.

So why am I suddenly talking about insurance companies? It’s no secret that the COVID-19 virus has caused many investments to plummet. Countless nest eggs have suffered.

The vast majority of the clients in my firm have the safety net of insurance covering at least some of their investments. It might be a death benefit that protects the deposit for the beneficiary. Or, it could be a living benefit, which provides predictable, reliable income for the benefit of the investor regardless of investment performance.

Some insurance driven investment firms offer vehicles that protect the principal against market downturns. Some offer a combination of the above, and most have distinctive features that make them a little different from their competitors.

Without a doubt, this arena can be complex and somewhat confusing. And of course, adding any of these features and benefits comes at a cost. But do cost and complexity mean such coverage is inappropriate? 

My casualty insurance is complex, but I wouldn’t think of going without it. Would anyone sleep well if their house wasn’t insured? We pay a price for peace of mind. 

Some national investment firms advertise and promote that you should never back investments with insurance because of the cost and complexity. I beg to differ.

Take a look at your investment account and you’ll see why. These often criticized insurance company based investments aim to provide comfort from this financial calamity.

I’m certainly not suggesting that every investment dollar should be under the umbrella of an insurance company. But I also think that it’s inappropriate to totally rule them out. Using a sports analogy, in golf you’re allowed to carry 14 clubs. Do you think the pros only carry 13?

For most investors, asset class diversification is appropriate, and for many, shifting some of the risk off their shoulders and onto an insurance company is comforting in these challenging times. In spite of the cost and complexity.

I’m all for full disclosures of costs and fees, but advisors are in a difficult situation. There’s a plethora of extra rules and forms we’re required to complete in order to suggest investment insurance to our clients. But in times like this, all I can say is I’m comforted knowing we went the extra mile.

Regular readers know of my fondness for American history. I don’t have a crystal ball, but I often look to history for guidance and comfort. Famous American orator Patrick Henry is best known for saying, “Give me liberty or give me death.” But, he also said, “I know of no way of judging the future but by the past.”

The road to recovery might not be swift, but knowing our nation’s history, I’m confident we will ultimately rebound.