Is Life Insurance an Investment?
Coming up in this video, is life insurance a good investment? I will explain you the pros and cons, coming up next. When you think about life insurance, you probably think to yourself, “life insurance is a policy that is in force when my die and pays money to people I’ll leave behind.” Right? I buy life insurance, when I die, money goes to my beneficiaries.Something like this. So sweet. But there are other things to think about when considering life insurance, for example, is life insurance a good investment product for you, while you are alive? Okay. So, before I start talking about life insurance as an investment, I need to give you all the legal disclaimers.
I’m simply going to give you some idea of how life insurance is being used an investment product for people. Before we can decide if life insurance is a good investment product, we need to have an idea of what makes up a good investment product to begin with. I am going to give you three ideas to consider. Number one, growth, you want to make money on your money. With the life insurance product, for example, a universal life insurance product, there is cash value inside the life insurance policy that is growing, there is a guarantee interest rate of growth and an unguaranteed interest rate growth. You will get somewhere between the guaranteed and the not guaranteed amount. But guess what, there is growth. Liquidity, you want to have access to your money with the universal life insurance policy, for example, you have access to the cash value at any time.
It’s a matter of calling your insurance agent or your broker, or contact the insurance company directly and you can get a check or your money wired directly into your checking account. Liquidity, Finally, tax advantages. With universal life insurance, again using universal life insurance as an example, you have tax advantages. How is that? Well life insurance is never tax-deductible, listen again, life insurance is never tax-deductible.
There's one or two tiny examples, we're not going to talk about those now. So, if life insurance is not tax deductible, how is there a tax advantage for having life insurance as an investment product? It’s very simple, the growth within a life insurance policy, let’s say a universal life insurance policy, is not taxed while it’s growing. If we have money in the savings account or money oin the CD, whenever you earn interest, you would pay taxes on the interest as interests accrues.
With the life insurance policy, you do not. The only time you start paying taxes, is when you start taking the money out of the life insurance policy. And you are only going to be paid on the growth. Meaning, if you end up adding ten thousand dollars into a life insurance policy, you can take that ten thousand dollars back without paying taxes, without it being taxable event. However, if that ten thousand dollars grew to fifteen thousand dollars and you took all fifteen thousand dollars out, you would only pay taxes on five thousand dollars.
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