MENU
EDU Articles

Learn about investing, trading, retirement, banking, personal finance and more.

Ad is loading...
Help CenterFree ProductsPremium Products
IntroductionMarket AbbreviationsStock Market StatisticsThinking about Your Financial FutureSearch for AdvisorsFinancial CalculatorsFinancial MediaFederal Agencies and Programs
Investment PortfoliosModern Portfolio TheoriesInvestment StrategyPractical Portfolio Management InfoDiversificationRatingsActivities AbroadTrading Markets
Investment Terminology and InstrumentsBasicsInvestment TerminologyTradingBondsMutual FundsExchange Traded Funds (ETF)StocksAnnuities
Technical Analysis and TradingAnalysis BasicsTechnical IndicatorsTrading ModelsPatternsTrading OptionsTrading ForexTrading CommoditiesSpeculative Investments
Cryptocurrencies and BlockchainBlockchainBitcoinEthereumLitecoinRippleTaxes and Regulation
RetirementSocial Security BenefitsLong-Term Care InsuranceGeneral Retirement InfoHealth InsuranceMedicare and MedicaidLife InsuranceWills and Trusts
Retirement Accounts401(k) and 403(b) PlansIndividual Retirement Accounts (IRA)SEP and SIMPLE IRAsKeogh PlansMoney Purchase/Profit Sharing PlansSelf-Employed 401(k)s and 457sPension Plan RulesCash-Balance PlansThrift Savings Plans and 529 Plans and ESA
Personal FinancePersonal BankingPersonal DebtHome RelatedTax FormsSmall BusinessIncomeInvestmentsIRS Rules and PublicationsPersonal LifeMortgage
Corporate BasicsBasicsCorporate StructureCorporate FundamentalsCorporate DebtRisksEconomicsCorporate AccountingDividendsEarnings

Is Life Insurance a Good Investment?

As a rule of thumb, life insurance should not be considered an investment at all, since it’s primary purpose is to provide insurance coverage.

That said, some cash value policies have attractive features that can be appealing in certain circumstances.

We will say that a smart investor who has done research and gotten good advice will generally not end up with a permanent cash value life insurance policy.

There are conservative whole life, universal life, and indexed universal life options that may offer competitive rates of return when compared with other very conservative options, such as Treasury Bonds and blue-chip dividend stocks. This will depend, of course, on the age and health of the person acquiring the insurance.

Using a cash value life policy instead of conservative alternatives for the “bond” portion of a portfolio asset allocation could prove beneficial in some cases. It could be, of course, that for a relatively unhealthy person, a permanent life product may be a good way to get a guaranteed rate of return to transfer a tax-free amount to heirs, while the market might not offer such surety in a set amount of time. Then there are the variable life policies that invest in the market while also providing a death benefit.

Overall, life insurance is a costly way to invest in the market and there are much more efficient alternatives. Because of the other costs and fees associated with them, even with tax-deferred growth and tax-free withdrawals, it is a rare situation to find them to be the best option for investment.

There are such situations, however.

Take a healthy young businessman with a high income an few options for tax-deferred investing, for whatever reason; or a healthy young business owner with an option to fund matching contributions and profit-sharing for his employees or to fund a variable life policy.

When compared to taxable alternatives, or to the costs associated with funding retirement for employees as well, there are variable life policies that will provide the most tax-equivalent income to that person in retirement.

What Percentage and What Kind of Bonds Should I Have in My Portfolio?
How Do I Know that Lie Insurance Companies are Reliable?

Ad is loading...