Monday, February 18, 2013

Life Insurance - A Wise Investment Option


If you're looking for a way to grow your money, let's come out right away and say it: life insurance is not meant to be an investment vehicle and should not be treated otherwise. However, many people use it as a way to supplement their investments and savings, because they like some features about permanent life that cannot be found with other money market funds or investment options. 

So what is permanent life insurance? And what do you mean by permanent? Is there another temporary sort of life insurance? Well, permanent life insurance is insurance coverage that lasts the insured person until the event of death, no matter at what age they die. All permanent life insurance policies have a cash-value component to them, which is the important part that counts for an "investment" as we know it. And is there such a thing as temporary life insurance? Yes, term life is many time cheaper than permanent life but lasts only for a certain number of years. So if the insured person lives past this period, term life coverage ends. It works just like auto or home insurance: if your car is not insured at the time of an accident, don't expect the insurance company to bail you out.

Why do some people not like permanent life insurance? The primary argument against permanent life is its steep fees and commissions pocketed by agents that don't mind pushing their agendas on to you. It is also a rather inflexible investment option, costing a lot in surrender charges to pull out your money should you decide you need it earlier. These surrender charges can be steep well into your tenth year of the policy, which some people can find very putting off. It also grows at a snail's pace, keeping in mind some of the other money market funds that grow at faster paces, but with plenty of risk attached. However, more people are turning to permanent life as a wise investment option because of finicky markets and risky economic conditions. While we still don't advocate using permanent life solely as an investment decision, it works great in combination with other investment vehicles. 

What is really encouraging about some permanent life products like whole life is that they've grown at the very comfortable rate of 4% all throughout the stock market crash of 2008. This can be construed as a wise investment to some people, who compare these yield percentages to government bonds and are amazed by the stark comparisons. What's more is that permanent life a great investment option for older folks is the fact that they can leave behind their death benefit amount to their beneficiaries or a charity of their choice tax free. Yes, that's right, tax free! (Free of federal incomes taxes, we should add. Some estate tax laws may apply. There are several complications around taxation, especially if your beneficiary is receiving interest payments as well on the death benefit amount, but for that, we suggest you consult a seasoned life insurance agent or financial adviser you trust).

There are some things you should be wary about before buying a permanent life policy. You may not be able to afford life insurance premiums on permanent life if you're struggling with getting the bills paid. Don't be without any life insurance coverage though-- get life insurance quotes at least for a simple no-frills term policy on an aggregator website to see how much it costs. For healthy younger individuals, the cost is only as much as 5 lattes in the month from Starbucks, so you may be able to afford life insurance cover after all. Also, if you're the kind that ends up needing emergency money every few years for a new flat screen TV or a new gadget for the car every few months, remember not to dip into your whole life policy. You've just got to have additional money being left over for such extravagant exploits. You can also allow your policy to reach "Paid Up" status using PUAs or Paid Up Additions. In this payment model, your cash value will automatically pay for premiums with the the interest it is garnering every year. There are several kinds of permanent life policies you can choose from, so do your research well.

For some people though, permanent life is never a good solution, so talk to an adviser that can recommend financial tools based on your overall portfolio. You can be a disciplined investor using other tools and means too, so weigh the options and pick the savings tool that's right for you.

Author Bio- Pat Cassidy is an industry expert on life insurance and a regular contributor to articles on various social media platforms in the field of his expertise. Having extensive knowledge of the way life insurance companies work and the underwriting processes used to calculate life insurance quotes, Pat writes articles to help readers better understand their life insurance options.


1 comment:

  1. What a wonderful piece of information Admiring the time and effort you put into your blog and detailed information you offer!

    ReplyDelete

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