oday we’re here to talk about if life insurance can be a worthwhile investment. Let’s start by talking about the two different kinds of life insurance that exists.
Term life insurance
Term life insurance is a temporary type of insurance you buy it for a period of time and while you’re paying those premiums for the period of time, if you die they pay a death benefit. But if at the end of that period of time you stop paying premiums, the amount of money that you paid disappears and therefore there was no investment value to that insurance, we call it pure life insurance and temporary in nature. So, if you’re talking about life insurance that could be considered a worthwhile investment you must be talking about permanent life insurance.
Permanent life insurance
Permanent life insurance comes in a variety of different forms, but the key to making it permanent is that has the ability to build a cash value in essence excess premium that will go to pay for the rising insurance costs down the road. Thus being able to last for your whole life until your death.
The different types of permanent insurance include whole life and universal life. In those categories, there’s also variable whole life and variable universal life, and a newer type of program that’s called equity index. But again, it’s a type of universal life. The thing in common of all three of these is again you put excess money into these products over and above how much you put in term life and it builds a cash value. as it builds this cash value, the insurance company pays a rate of return on this amount of excess premium. In the case of whole life, the company pays dividends. In the case of universal life, the company will pay a going interest rate.
9. life insurance investment
Good Life Insurance be a Worthwhile Investment
Now in today’s day, there are dividend-paying whole life policies paying four and five percent. Likewise, universal life policies are also in the five percent range, although that amount of interest can vary. Today compared to what you can earn on a savings account or a money market, those could be considered worthwhile investments. The other thing about permanent life insurance that builds cash value, is that the cash value the earnings, the dividends, and the interest. The earnings grow tax-deferred. So it’s another consideration when you think about good life insurance be a worthwhile investment.
Again, there are variations of both whole life and universal life that are called variable products. At this point you’ll take your cash value you’ll enter into market type in instruments, that can grow or lose value depending on how the markets performing. But, for the sake of this conversation, I think it’s fair to say that life insurance can be considered a worthwhile investment.
The thing to be careful of is, often the internal charges for the actual life insurance, might be higher in these permanent insurance products than it would in term life. So, number one most importantly you should have a life insurance need if you’re going to consider life insurance as a viable investment. That means that there is someone in your life who would be financially hurt by your premature death. Number two if that is the case and you need life insurance you might want to consider a variable or whole life as a worthwhile investment. But, with any financial vehicle, we always recommend that you go seek professional advice before entering into any type of insurance contract. I hope we answered your question today.