Business Development Officer, T.D. McNeil Insurance Services, Fresno, California
Life insurance is a very conservative investment. The gain in a life insurance policy is tax deferred. The proceeds (death benefit) are given to the beneficiary income tax free. It is the tax advantages that are particularly attractive and the fact that it is self-completing make life insurance the backbone of any sound portfolio.
President, The Firm of Steven H. Kobrin, LUTCF, 6-05 Saddle River Rd #103, Fair Lawn, NJ 07410
I am going to answer this question as someone who sells whole life and universal life only. I do not sell variable life insurance, which is typically considered an investment.
First of all, I think the word "investment" does not really apply to life insurance, regardless of the type of product. This is because life insurance is first and foremost intended to provide a benefit to survivors. Any cash it develops is nice to have, but it is secondary. The first priority in buying life insurance should be getting the most attractive premium for the entire time you need coverage. Even with very aggressive underwriting, that cost can be higher than the costs associated with conventional investment products.
Now, life insurance does have specific tax advantages. These include tax-deferred cash accumulation, and income-tax free benefits. You should speak with your tax advisor for more details. If the insured is young enough, and qualifies for a low enough rate, and is in a high-enough tax bracket, then the cost of his life insurance might be lower than the taxes he would pay on an investment outside life insurance. Here life insurance may be considered a smart "investment."
In most other cases, life insurance would not be a smart investment. But, with a strong product from a strong company, the guaranteed cash value in a whole life or universal life product could be significant. You could get more bang for your buck inside life insurance that you would from a standard conservative investment. For that reason, people do use life insurance as the guaranteed or conservative part of their financial portfolio.
Life Insurance works as an investment by using the excess premiums you put in, after the cost of insurance and other internal costs are paid for. This excess premium is credited interest either by an internal account or via an index if the life insurance is an equity indexed universal life or whole life policy.
You get the benefit of compounding interest and tax deferral or tax free income depending on how you take the money out of the policy and the status of the policy ie., is it lapsed or not.
This is a "cliff-notes" version for you. Reach out to your broker/agent to get an illustration to see examples of possibilities. Keep in mind, I do not recommend using this for 100% of your investments however to use this as a supplemental investment.
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First of all, I think the word "investment" does not really apply to life insurance, regardless of the type of product. This is because life insurance is first and foremost intended to provide a benefit to survivors. Any cash it develops is nice to have, but it is secondary. The first priority in buying life insurance should be getting the most attractive premium for the entire time you need coverage. Even with very aggressive underwriting, that cost can be higher than the costs associated with conventional investment products.
Now, life insurance does have specific tax advantages. These include tax-deferred cash accumulation, and income-tax free benefits. You should speak with your tax advisor for more details. If the insured is young enough, and qualifies for a low enough rate, and is in a high-enough tax bracket, then the cost of his life insurance might be lower than the taxes he would pay on an investment outside life insurance. Here life insurance may be considered a smart "investment."
In most other cases, life insurance would not be a smart investment. But, with a strong product from a strong company, the guaranteed cash value in a whole life or universal life product could be significant. You could get more bang for your buck inside life insurance that you would from a standard conservative investment. For that reason, people do use life insurance as the guaranteed or conservative part of their financial portfolio.
You get the benefit of compounding interest and tax deferral or tax free income depending on how you take the money out of the policy and the status of the policy ie., is it lapsed or not.
This is a "cliff-notes" version for you. Reach out to your broker/agent to get an illustration to see examples of possibilities. Keep in mind, I do not recommend using this for 100% of your investments however to use this as a supplemental investment.