Case Study: A Client Who Saves in Gold 

Case Study: A Client Who Saves in Gold 

Case Study: A Client Who Saves in Gold 

Meet Vikas. He is a family-business entrepreneur with a rather classic problem: His family has been purchasing and saving gold for nearly three decades now. And I don’t mean gold as in jewelry – they’ve been buying, bartering, and saving actual gold bricks. 

Global Financial Concept: Combination of mixed American US-Dollar currency, one hundred Turkish money, TL paper banknotes from Turkey and gold ingots. International stock market exchange rates as economic background with copy space.

For the sake of this case study, let’s assume they’ve got about US$ 2 million saved up in gold. 

You might think US$ 2 million worth of gold in savings is a great problem to have, but let me outline some of the challenges they’re facing. 

Challenge #1: Bricks of gold are a largely immovable asset. Should any kind of a problem strike, causing the family to have to relocate back from the UAE to their hometown in India, moving 2 million dollars worth of gold across jurisdictions is going to be a tough ordeal. 

Challenge #2: Even if the gold doesn’t need to move, storing and safeguarding the gold bricks is a logistical nightmare involving safety vaults and lockers, whether at home or at the bank. Traveling or even commuting with gold bricks can be stressful. 

Challenge #3: Gold isn’t easy to liquidate. If the family needs a sudden cash lifeline, selling gold bars is hardly an overnight activity. And that brings me to the next major challenge

Challenge #4: Gold is hardly a stable investment, despite what our parents and grandparents believed and told us. The value of gold is volatile – it sees big swings up and down, and there is no telling how much you will get for it when you need to or decide to sell. 

That, along with factors like the devaluation of the dollar and steeply rising inflation rates means that gold isn’t necessarily a lucrative investment. 

It doesn’t have the compounding power that comes with most other forms of long-term investment. 

Two Businessmen Cafe Meeting Insurance Application Concept

The Solution 

When Vikas shared his situation with me, these challenges jumped out at me straight away. He knew as well as we did that, he needed to turn that gold into a more reliable safety net. So we turned to the one safety net that I know never fails: Life Insurance. 

We recommended that Vikas explore the option of a single-premium Whole Life Insurance policy. 

Vikas is currently 38 years old and in good health. If he chooses to liquidate the 2 million dollars that he currently has saved in the form of gold bars, he would be able to purchase a single-premium Whole Life or Universal Life Insurance Policy giving him about 10 million dollars of cover. 

Let’s look at the benefits of this solution: 

  1. A solid, fixed payout and cash lifeline 

First, if the worst happens and Vikas dies, the 2 million dollars sitting in gold bars will only fetch his family whatever the gold markets stipulate today. It could be 1.6 million dollars and it could be 2.2 million dollars – there is no telling. 

With a Life Insurance policy in place, however, Vikas’s loved ones would stand to receive US$ 10 million for that US$ 2 million investment – a 5x return. 

But what if disaster strikes in another form, during Vikas’s lifetime? A blow to the family business, or some other problem that means that the family needs a cash lifeline. The premiums paid into a Universal Life Insurance policy remain a ringfenced, accessible pot of money for Vikas and his family. This is a much easier pot to reach into than a pot of gold too – which can be difficult to liquidate. 

  1. A portable pot of money 

Secondly, the cash invested into a Life Insurance policy in the form of premiums as well as the death benefit is portable. By this I mean that unlike the hard-to-move and hard-to-liquidate gold bricks, this money can be accessed by Vikas and his family anywhere in the world, potentially tax-free. 

  1. This sum is also ringfenced

During Vikas’s lifetime, the 2 million dollar premium is a ringfenced sum of money that he and his family can rely on and draw down from, anywhere in the world. And upon Vikas’ death, the death benefit can be paid out to his family members anywhere in the world, and would potentially be tax-free. 

  1. Growing Cash Value 

Finally, whether it is the premiums or the death benefit of a Life Insurance policy, Vikas and his family have clarity and predictability of exactly how much money they will have access to when they need it most. The investment is secure – the premiums go into an S&P 500 index, which means that the cash value of the policy grows over time in the long run. 

If Vikas lives to a ripe old age, his investment in the Life Insurance policy will continue to grow at an average of x% per annum, as opposed to the potential and volatile 2-3% return in the form of gold. If the worst happens and Vikas passes away, he would be leaving his family behind with an assured 5x of that amount – US$ 10 million as a Life Insurance payout. 

To conclude 

This switch from savings in the form of gold to savings in the form of a Life Insurance policy provides stability, assurance, and a much more robust financial safety net for Vikas and his family. 

This case study might not seem like a common, relatable problem – not many of us have 2 million dollars worth of gold bricks sitting around. But take a look at your savings and investments – are there other immovable, illiquid asset classes in your portfolio that might prove a burden rather than a blessing to your loved ones as an inheritance? 

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