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?