Is Life Insurance an Investment?

Life insurance is a complicated issue in the world today. Many people decide to buy life insurance policies as a means of providing for their families in the unfortunate event that something should happen to them. Funeral expenses can put a major burden on grieving families, and a life insurance policy can be a great help. Some, however, are now viewing life insurance as an investment. This new approach to policy shopping is changing the way people everywhere look at life insurance policies, but is life insurance really an investment? And if it is, is it a good investment?

Not all life insurance policies are created equally. A term life insurance policy, for example, is as close to the opposite of an investment as one could imagine. When you make an investment, you expect to generate a return--this is essentially impossible with term life insurance. Policies like this will cover you for a set amount of time, and if you outlive the policy term you will typically receive nothing. This amounts to significant premium payments over time that will never come back to you with returns. A term life insurance policy, by its very nature, cannot be considered an investment.

Whole life insurance, on the other hand, works in a very different way. This is usually the kind of policy people are thinking of when they talk about life insurance as an investment. Whole life insurance policies offer coverage that lasts, naturally, for your whole life. These are more expensive than term life insurance, but they also offer more benefits. A whole life insurance policy may come with additional accounts to which a portion of your premiums are deposited monthly. These accounts may be accessed tax free to be used for things like retirement expenses, which is an attractive option for many.

However, if you're considering a life insurance policy as an investment, it would behoove you to inspect several policies as closely as possible. Get all the details on premiums, cash value accounts, and any relevant fees. Many policies are not exactly as attractive as they may appear at first glance. Generally, life insurance is not something that is bought. It is sold. Insurance agents earn fat commissions from the policies they sell, and they are highly motivated to sell you things you don't need. You may feel like you've chosen a great life insurance policy, when in fact it has been dressed up and sold to you for more than it is worth.

Policies and individual needs vary, and life insurance as an investment may be a good option for some. However, making an investment in life insurance is a tricky matter. The lowest life insurance rates are not likely to generate returns, and it is usually only expensive whole life policies that offer any possible reward. Individuals who have maxed out their potential for investment in other fields might do well to invest in life insurance, but a retirement account is often the more prudent choice for most. As with any investment opportunity, approach life insurance cautiously and be careful with your money.