Do you have life insurance? Do you use your life insurance policy as an investment? Well first everyone who has people who depend on them needs to have some form of life insurance, and that is a fundamental fact. If you have a family or other loved ones who depend on you financially, it is prudent for you to have some life insurance in place to protect them in case of your eventual death. But as an insurance agent I do not see life insurance as a potential investment but there may be an exception we will discuss later in the post.
Let’s face it, if you want large returns, you will look toward equities and then maybe bonds for your investments no a permanent life insurance policy that mainly will build cash value. And to be honest, life insurance is meant to protect your heirs when you pass and not as an investment vehicle for you while you are alive. Again, if you want growth in your investments look towards equities and bonds for the growth of your principal. Yes, permanent policies do accumulate cash value but chances are it will be far less than other investments when you make the comparison.
Term life is the most common form of life insurance for most people. That is mainly for the fact it provides larger death benefits to people for a lower premium. Term policies can be used to great effect when planning for particular periods in one’s life like buying a house or when children are of the age when education is required. If you are a younger person and have a family or even middle aged term policies can protect your loved ones if your income were to be lost. All of these are excellent reasons to purchase a term policy.
Permanent policies are for the remainder of the insured’s life and will build cash value within the terms of the policy. While I do not consider this accumulated cash value to be an investment, it can serve a valuable purpose. Say you had investments in 2009 and needed money for a particular reason and also owned a permanent life insurance policy with a substantial cash value. Now in this case a permanent policy would have been a better place to withdraw funds from an investment account. That is because the cash value can be replaced over time or not at all if you do not mind having your death benefit reduced by the outstanding principal and interest owed. Had you withdrawn the funds from your investment account you would possibly have missed one of the best Bull Markets in recent memory. While the permanent life insurance policy is still not considered an investment, it did provide a valuable option to withdrawing funds from an investment account at the worst possible time.
Now life insurance agents can also sell a product offered by many life insurance companies, and those are annuities. While these also are technically not considered investments for the basic variety they can provide you a valuable source of income for the rest of your life. Annuities while basic is theory are some of the most sophisticated financial products that are sold to individuals. Some are relatively straightforward and can be sold by any life insurance agent while others are much more complex and need to be sold by a life insurance agent who also holds a security dealers license as well. These are sometimes called variable annuities instead of the more common fixed annuity that any life insurance agent can sell. I am not advocating of one annuity over another, but it is vital that when you purchase one you do so from a competent agent and thoroughly understand what it is you are purchasing.
In this post, we have covered some complex issues that are none the less very important. Life insurance is nothing to be toyed with and can be essential to protect your family and loved ones. But I do not advocate life insurance in any form as an investment except possibly an annuity. And please remember that annuities, like life insurance, are contracts between you and an insurance company and in no case do they represent an investment.
If you need additional information or have any questions, please do not hesitate to contact me.
