What is Asset Protection Insurance?

Sometimes known as guaranteed asset protection insurance or GAP, asset protection insurance is a type of policy that protects the insured party from sustaining losses on investments and other assets if and when certain events take place. Many policies of this nature focus on protecting the value of assets from a decline in the event that the insured party dies, a feature that helps to insure that heirs of the deceased are not adversely affected by those declines. The viability of this type of insurance protection is debated, with proponents seeing the coverage as an essential strategy in estate planning while others question if the returns from this type of policy actually justify the expense of maintaining the insurance.

For those who see asset protection insurance as an important aspect of planning an estate, the focus is often on investments that are related to that estate. In this scenario, the asset protection coverage works to make sure that even if the assets held at the time the owner dies undergo a significant drop in value at that time, the terms of the policy will cover at least a portion of that decrease. This can be important, not only in terms of providing for survivors, but also in maintaining any trusts or paying off any debt obligations that may be part of the overall settlement of the estate.

Detractors of asset protection insurance object to the need for this type of coverage on several grounds. One has to do with the expense of maintaining the coverage. Rather than paying the sometimes exorbitant premiums, those funds could be placed into some sort of interest bearing account that carries a low level of risk. Those who are opposed to the insurance also note that most investments will post gains and losses over time, and the chances of all the assets in a portfolio posting losses at the same time is highly unlikely. Since most forms of asset protection insurance will only cover the amount originally paid to secure the investments, and possibly a very small percentage above that amount, the protection afforded by the coverage may not be as broad or significant as it seems at first glance.

Before making a decision to purchase asset protection insurance, it is a good idea to work with a financial planner to determine what degree of benefit can be obtained from the coverage. For some people, that level of protection may be minimal and not worth the cost of the premiums paid in over the years. For others, particularly those who possess portfolios that are large and varied, there is a good chance that the insurance will be of greater value.