Using Life Insurance As An Invesment

Many people who are considering life insurance have heard about the countless benefits and peace of mind it can bring. Once such benefit is using life insurance and an investment for retirement planning.

Term Life Insurance

When you buy term life insurance, the premiums you pay are solely in exchange for a death benefit over a pre-determined amount of time. It is the least expensive form of life insurance because the death benefit is all that you receive from you premiums. Term life insurance cannot be sold as an investment.

Whole Life Insurance

Whole life insurance, however, will not only provide coverage throughout your life, but can also be used as an investment. In the beginning, you’ll find that your premiums are higher, but they will eventually become comparable and potentially lower down the road. The beauty of whole life insurance is that with the excess premiums that are paid over the actual benefit, your insurance company sets up an investment or an accumulation account.

An accumulation account has great appeal as a retirement investment because of its tax treatment. Your money grows tax deferred! In other words, taxes are postponed on capital gains and income. As a disadvantage, you should know that using a life insurance policy as an investment can yield some high fees and expenses that might erode the returns of ordinary security systems such as mutual funds.

So the question becomes: what is more beneficial? Should you buy an inexpensive term policy and make separate investments or should you you purchase a whole life policy with a built in investment account?

Term or Whole Life Insurance: What To Consider.

• Cost of Premiums: You should never skimp on amount of benefits you need, neither should you over estimate. Figure out how much insurance you’ll need. If you can only afford a term policy, then buy it and make investments down the road.

• State and Federal Tax Brackets: The benefit of tax deferment is only as great as the amount of taxes deferred. In other words, the higher your tax bracket, AND the longer you have until retirement the more valuable the benefit can be.

• Getting Insurance Later In Life: This is a major concern as we age. Our risk for more serious illnesses increase with age which can make it more difficult to obtain a term policy. Be sure to compare guaranteed renewable term policies with the price of whole life policies.

• Be Willing to Shop for No-Load or Low-Load Policies: Unless you buy a no-load or low-load policy, the cost of whole life insurance will overshadow any returns. You could be better off buying term insurance and investing the difference separately.

As you can see there is no cookie-cutter process to choose which plan suites your investment portfolio needs. It’s about weighing the pros and cons carefully, educating yourself and shopping around for the best options out there.