Asset allocation is the process of investing based on an individual's specific needs. In other words, it involves customizing investments to the person based on their age, risk tolerance, plans for the future, and other similar factors. In the context of insurance, many life insurance companies use asset allocation to help their policyholders find suitable investments.
There are three main asset classes: fixed income, equities, and cash and equivalents. Within these classes are a number of different options that represent varying levels of risk and reward. Many life insurance policies offer an investment component to help increase the cash value of the policy. Which assets a person wants to allocate their funds into depends greatly on their financial goals. For some people, more risk is okay if the rewards are potentially higher and shorter term. For some, less risk is the way to go. Whatever the case may be, life insurers commonly offer asset allocation services.
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