We all know that life insurance is very important for the financial safety of any family. Carrying life coverage means that your dependents will be able to support themselves even if you are not alive anymore to provide for them.
But can you use a life insurance policy to gain money, as an investment opportunity? Many agencies advertise permanent life coverage policies as an "investment opportunity". These policies come with an account which builds cash value at a fixed or variable rate. A part of the value you pay as premiums goes into the policy's account. Some policies, like variable universal life insurance allows you to invest in different stock accounts.
The best advantage is that you can use the cash value during your lifetime. Withdrawing money is tax-free as long as the amount you take does not exceed the policy's coverage. Some are thinking of buying permanent life coverage to save for retirement or pay for their children's education. Beside, buying term life insurance is a waste of money if you do not die during the coverage period, right? Before thinking of using life coverage as an investment, here are some things to consider:
- How much?
The problem with permanent coverage is that you pay permanent premiums. This may be harder and harder to do during retirement. In most cases, insurers pay more in premiums than their policy's coverage.
- Will your beneficies still need it?
Sure, a permanent life insurance policy will pay off ever, unless you are immortal and you will have to pay premiums toill the end of time (whole life insurance makes immortality sound pretty scary). But, will your beneficies still need the money? You may find yourself spending your retirement money on a policy that nobody really needs.
- Does it really pay off?
The policy's cash value grows at a very small rate of interest (1-2%). Financial advisors agree that there are other savings methods which will return a higher amount of money. The policy's cash value needs time to grow and many people overestimate the amount that will receive after several years.
Permanent life coverage is expensive and sometimes it does not pay off. However, some policies like variable life coverage can provide some investment opportunities, but they require careful planning and are quite risky. So, is life insurance an investment opportunity? I'll have to say no. You should not buy life coverage just to save some money!