Not many view life insurance as an investment. To many, it’s just a safety net for the future. It’s mostly purchased for estate planning or for one’s heirs if they pass away. Seldom is it considered an investment. In this piece, we are going to take a look at whether it is wise to use life insurance as an investment and how best to do it.
Types of Life Insurance
There are basically two types of life insurance that one can take up to cover them: term life insurance and permanent life insurance. Term life insurance is similar to auto insurance. It is temporary, and individuals buy it to cover them over a span of years after which it expires. Most of these covers can be converted into other term plans though at a higher premium.
Additionally, they can be converted into “whole life” policies.
There are various types of permanent life insurance. These cover the individuals for their entire lives and have a cash value attached. One type of permanent life insurance is whole life insurance. Compared to term insurance, it’s premiums are more expensive and it spans for a lifetime. It also has fixed death benefits, and one is assured of the cash value accumulates.
The most popular permanent life insurance among investors is universal life insurance. It is different from whole life insurance in that it has flexible premiums, it’s death benefit is adjustable and includes a savings component that is reliant on asset location and risk tolerance. However, to qualify, a medical exam may be included. In both of these examples, there are deferred taxes and the investors can take up loans against the policy’s cash value.
Insurance as an Investment?
When investing, most wealth managers prefer term life insurance to whole life insurance. This is because whole life insurance is geared towards protecting that to investing. The investment options it presents are limited severely. With term life insurance, you get to pay a lower premium, and you can invest the rest of the money that you’d otherwise have invested in a whole life premium, in avenues that will generate you money. However, if your intention of getting into insurance is wealth transfer, then the whole life policy is ideal for you because of its estate planning and tax perks.
In conclusion, if you are looking to invest in insurance, it shouldn’t be because you require insurance coverage. It’s best for investors who are looking for more places to place their money after they have exhausted other avenues.