How Insurance Aids in Wealth Creation
Insurance can serve as a powerful tool in aiding wealth creation, as it protects against unexpected losses, while also presenting opportunities for wealth accumulation. Here's how insurance aids in wealth creation.
Mitigation of Financial Risks
Insurance is fundamentally a mechanism for transferring risk as it protects an individual's wealth by hedging against potential financial losses. For instance, health insurance covers the cost of medical expenses, thereby mitigating the risk of depleting one's savings due to a sudden illness. Property insurance protects against losses due to natural disasters or theft. Term life insurance provides financial stability to dependents in case of the policyholder's untimely death. By mitigating these risks, insurance helps protect the wealth an individual has already accumulated.
Annuities
Annuities are insurance products that provide a reliable source of retirement income throughout retirement, offering guaranteed payouts. However, annuities come with additional costs and may not be suitable for all investors. Investors are encouraged to work with a financial or insurance professional to understand how annuities work before purchasing one.
Guarantees are based on the claims paying ability of the issuing company.
Wealth Transfer & Estate Planning
Life insurance can also play a crucial role in wealth transfer and estate planning. The payout from a life insurance policy can help cover estate taxes, preventing the need for heirs to liquidate assets.
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By understanding the multiple facets of insurance, individuals can leverage it for protection in their wealth creation strategy.
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Drawn to their attractive all-in yields, investors have continued to invest in riskier public and private corporate debt this year, even as high-yield spreads to Treasuries hover around their tightest levels since mid-2007. However, despite still-elevated rates keeping yields enticing, investors should consider the quality of companies backing this debt. This will be particularly relevant for below-investment grade companies if we enter a period of slower economic growth, or even a recession, as there will be an outsized impact on these borrowers. Below-investment grade companies comprise the high-yield, leveraged loans and private credit markets. One metric used to assess credit risk is issuer-weighted default rate, which measures the number of defaults by issuer – not dollar amount. As shown in this week’s chart, despite headline issuer-weighted default rates remaining low across riskier public and private credit, there may already be signs of stress building up under the surface. This is observed by looking at increased default rates including distressed exchanges, non-accruals and other out-of-court restructuring agreements that lenders and borrowers negotiate to avoid bankruptcy. Among leveraged loan and private credit users, the usage of provisions such as “amend and extend” and “payment-in-kind” have ticked up noticeably higher over the last several quarters to aid struggling borrowers. While lenders using these mechanisms for troubled credits is generally not worrisome under solid economic conditions, it could be a precursor to wider-spread trouble for already risky companies should economic conditions deteriorate.
While the resumption of rate cuts will help struggling borrowers with their debt burdens on floating rate loans, investors may want to consider diversifying their public and private credit allocations to add more core, high-quality exposure within each asset class.
Chart of the Week: Source: J.P. Morgan Credit Research, KBRA, J.P. Morgan Asset Management.
Thought of the Week: Source: J.P. Morgan Credit Research, J.P. Morgan Asset Management.
Index: Institute for Supply Management Manufacturing Index; PCE: Personal consumption expenditures; Philly Fed Survey: Philadelphia Fed Business Outlook Survey; PMI: Purchasing Managers' Manufacturing Index; PPI: Producer Price Index; SAAR: Seasonally
Adjusted Annual Rate
MSCI EAFE is a Morgan Stanley Capital International Index that is designed to measure the performance of the developed stock markets of Europe, Australasia, and the Far East.
Bond Returns: All returns represent total return. Index: Bloomberg US Aggregate; provided by: Bloomberg Capital. Index: Bloomberg Investment Grade Credit; provided by: Bloomberg Capital. Index: Bloomberg Municipal Bond 10 Yr; provided by: Blomberg Capital. Index: Bloomberg Capital High Yield Index; provided by: Bloomberg Capital.
Key Interest Rates: 2 Year Treasury, FactSet; 10 Year Treasury, FactSet; 30 Year Treasury, FactSet; 10 Year German Bund, FactSet. 3 Month LIBOR, British Bankers’ Association; 3 Month EURIBOR, European Banking Federation; 6 Month CD, Federal Reserve; 30 Year Mortgage, Mortgage Bankers Association (MBA); Prime Rate: Federal Reserve.
Commodities: Gold, FactSet; Crude Oil (WTI), FactSet; Gasoline, FactSet; Natural Gas, FactSet; Silver, FactSet; Copper, FactSet; Corn, FactSet. Bloomberg Commodity Index (BBG Idx), Bloomberg Finance L.P.
information from FactSet's Pricing database as provided by MSCI. Russell 1000 Value Index,
Style Returns: Style box returns based on Russell Indexes with the exception of the Large-Cap Blend box, which reflects the S&P 500 Index. All values are cumulative total return for stated period including the reinvestment of dividends. The Index used from L to R,
top to bottomare: Russell 1000 Value Index (Measures the performance of those Russell 1000 companies with lower price-to book ratios and lower forecasted growth values), S&P 500 Index (Index represents the 500 Large Cap portion of the stockmarket, and
is comprised of 500 stocks as selected by the S&P Index Committee), Russell 1000 Growth Index (Measures the performance of those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values), Russell Mid Cap Value Index (Measures
the performance of those Russell Mid Cap companies with lower price-to-book ratios and lower forecasted growth values), Russell Mid Cap Index (The Russell Midcap Index includes the smallest 800 securities in the Russell 1000), Russell Mid Cap Growth Index (Measures the performance of those Russell Mid Cap companies with higher price-to-book ratios and higher forecasted growth values), Russell 2000 Value Index (Measures the performance of those Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values), Russell 2000 Index (The Russell 2000 includes the smallest 2000 securities in the Russell 3000), Russell 2000 Growth Index (Measures the performance of those Russell
2000 companies with higher price-to-book ratios and higher forecasted growth values).
Past performance does not guarantee future results.
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Unless otherwise stated, all data is as of October 6, 2025 or as of most recently available.
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