If you’re considering buying life insurance as an investment, you should consider a few factors. First of all, you should know that the return on life insurance is much lower than that of a traditional retirement account, and the premiums can be expensive. Many financial planners and consumer advocacy groups recommend that you purchase a term life policy and invest the difference in a traditional savings or retirement account. However, this is not an option for most people.
Secondly, you should know how long your insurance policy will last. You should know that whole life insurance policies can last for several decades, but they are more expensive than term policies. You should also ask a professional for a projection of the premium money. For example, a term policy is designed to pay off within the term of the policy, whereas a whole policy will remain in force after most of your other obligations have been paid off.
Once you have determined the price range, you should begin shopping for the policy. You can use online tools to compare quotes, or consult with a local insurance agent. The goal is to buy the policy that provides you with the most benefit at the lowest cost. For whole life policies, premiums vary by type, and some companies do not offer online quotes.
One of the biggest drawbacks of life insurance as an investment is the amount of flexibility. It’s hard to make changes to your policy after you’ve purchased it. However, you can invest your premium in an investment that does not involve stock market risk. If you have a high income and plan to retire within a few years, you may want to consider a whole life insurance policy as an auxiliary investment.
Another drawback to whole life insurance is the surrender fee. Some insurers charge surrender fees, meaning you must cash out your policy within 20 years or you won’t get your money back. However, if you’re looking for an investment that’s tax-free, whole life insurance is a good choice.
If you’re planning to leave your estate to your children or heirs, life insurance can be a great way to protect your assets from estate taxes and market volatility. In addition, you can direct a small percentage of your net worth or income into a life insurance policy, which will help hedge against underperforming markets and pass on your assets in a tax-efficient manner. However, you should note that the leverage that life insurance offers may reduce as your other assets grow.
Another important advantage of life insurance as an investment is the cash value. The insurance company will invest a portion of your premiums into a cash account, which you can then use while you’re still alive. However, the money is usually returned to the insurance company after death. In general, cash value life insurance can become zero or close to nothing in a year or three.