How to Use Life Insurance as a Smart Investment?

How to Use Life Insurance as a Smart Investment?

There are multiple types of life insurance. However, they typically fall into two categories;

Whole life policy has an investment component. The policy holders are allowed to accumulate a certain cash value.

Term life insurance is quite similar to other insurance policies in its functionality. As such, you may pay premium each month and receive a benefit if something bad happens.

You might have heard your financial advisers or insurance agents who advocate for life insurance as a viable investment. They are usually referring to the cash-value component of whole life policy which allows investing and borrowing of this money.

Several economists advise against buying whole life policy. Their recommendation is based on the high management fees and agent commission associated with it. On the other hand, they advocate use of term life policy because of lower fees. It also leaves money for other potentially more profitable investments.

Whole life insurance can be a smart investment either way.

Pros Cons of Whole Life Insurance

Many economists advise using whole life policy as an investment. Yet, many of these benefits are not unique to whole life policy alone. They can be exploited in other ways, all the while avoiding high management fees and agent commissions. Following are some benefits of a whole life policy;

1) An Undisturbed Tax-Deferred Growth of Cash Value

You are not required to pay any taxes on the interests, dividends or capital gains on cash value. At least, not until you withdraw the proceeds. IRA, 401(k) and 403(b) are a few retirement plans that take advantage of precisely this tax benefit.

2) Non-Expiration of the Policy Until Age 120

Unlike term life policy, the whole life insurance policy does not lose coverage after a fixed number of years have passed. It can continue to accumulate as long as you pay the premiums, until the age of 120 years. This benefit is attractive to individuals who anticipate people being financially dependent on them, such as a disabled child.

3) Permission to Borrow Against Cash Value

You can borrow money against cash value of a whole life policy. You can use it to pay for any major expenses, such as buying a home or paying for college. On the other hand, you can also take out money directly from the policy. However, that will jeopardize your retirement savings. It will continue to accrue interest until everything has been repaid. If you die before repaying the loan, the beneficiaries receive a smaller death benefit.

4) Permission to Get Accelerated Benefits in Sickness

You can receive an amount from 25% to 100% of your whole life insurance policy’s death benefit if you’re sick. These are called accelerated benefits. They can be used to pay for medical bills or possibly make the final months of life a little better. The disadvantage of this acceleration is that the beneficiaries will not receive the anticipated full death benefit.

Pros Cons of Term Life Insurance

All the premiums of a term life policy go about securing death benefit for the beneficiaries. This policy does not accumulate a cash value. Consequently, it also does not have an investment component. If you remain alive by the term’s end, neither you nor your beneficiaries see any money and the policy collapses. This policy is more for peace of mind of policyholder that if they happen to die, their beneficiaries will not be left helpless.

Get Access to the Best Life Insurance Policies

SG Financial Inc. is one of the best providers of life insurance policies in Plano, Texas. Our extensive experience allows policyholders to receive maximum privileges. Ensure your children and beneficiaries receive a plentiful future through us.