Life Insurance: Is It a Useful Investment?

Life insurance can be divided into two broad categories: Term insurance and permanent life insurance policies. In case you choose a term insurance policy, you will get a coverage for a temporary period of time, e.g. 10 or 20 years. With a permanent policy, the insurance can go on for your lifetime. If you buy a permanent policy, there are three additional groups of these: Term 100, Universal Life and Whole Life. Universal Life and Whole Life are available in multiple variations. The best solution for you and your situation can be found in cooperation with a qualified insurance advisor.

When you pay the premium for a Whole Life insurance, it already includes the investment part, but in case of Universal Life policies, it is paid separately. Moreover, if you purchase a Universal Life policy, you have a wider variety of investment options. When you are deciding for the best life insurance, the most important aspect is that it should fit your situation and needs. If your needs are met and the premium for a permanent life insurance is reasonable for you, the next crucial aspect is whether it is a sound investment.

There are a lot of different and often opposite opinions on this subject, partly because not many people really understand the matter of life insurance as an investment. The crucial advantages and disadvantages of using life insurance as an investment will be described in the following part of our article:

Pluses

* The growth of the benefits within the insurance and the MTAR lines are on a tax sheltered basis. For Whole Life policies, the premium is set so as no to exceed the MTAR limit. Universal Life products have a maximum premium set according to the MTAR limit. 
* Both the investment portion on an increasing death benefit Universal Life policy and the dividends on a Whole Life insurance are added to the face amount and paid out on top of this face amount, tax free. 
* The investment part on a permanent insurance can be used for future premium payments, so that you can pay with pre-tax money rather than after-tax. 
* The minimum investment rate guarantees are adjusted to more than 4% in case of many Universal Life policies. This is a perfect feature for the risk adverse investor in today's low interest rate environment. 

Disadvantages

* Many permanent policies have surrender penalties if the plan is cancelled within the first few policy years. 
* Generally, it is not a great idea to choose a permanent policy, if you don't need a permanent life insurance, as the mortality charge for the life insurance would be higher.