Using Life Insurance as an Investment Vehicle
When you're thinking about your retirement investment portfolio, you might be wondering about whether or not to include life insurance. The principle is fairly simple - you pay a little bit over several years, and if you die, your beneficiary gets an amount of money that approximates what you would have earned if you'd lived.
Here's what you're buying - a replacement plan. If your family suffers a loss due to your death, they get money that helps them to offset the loss. So, is it a good deal? Should you consider life insurance as an investment? Maybe! But as is the case with virtually every other type of investment, there are things to consider.
You know the phone call - you usually get it when you're having dinner, and it's someone calling to tell you how you can make tons of money by investing in something or other - it’s often, life insurance. Is life insurance as an investment really worth to go for? Why would you buy something that's only going to pay out when you die, and you won't see the benefit?
The fact is, you actually could see benefits while you're still alive. With permanent life insurance, part of your premium payments are actually invested on your behalf, and you can borrow some of it, tax-free, for almost any purpose you could imagine - to invest in other securities for your retirement, to pay for upgrades to your home, and even to put your kids through college. And if it's done properly, your heirs can still get a good chunk of change after you're gone. So retirement investment plans have a huge bonus in store.
Life insurance as an investment although benefits you, still, you need to consider a few things.
What Is Life Insurance?
Remember that life insurance in its truest sense is not really ‘insurance’. You're not insuring anything, since no one can prevent you from dying. Realistically, it's about hedging your bets. And because of that, the more coverage you afford the better. Life insurance as an investment makes your financial insecurities go away.
How Much Insurance do You Really Need?
The whole purpose of life insurance is to make sure that your family is okay financially if you die. So don't pay for insurance that you don't need - mortgages and credit card bills are usually covered by the loan carrier. So you don't want to add that on to your life insurance - it jacks up your premiums, and makes your life insurance a less viable investment.
How Long Will You Need to Be Insured?
Insurance as an investment should be bought early. The more you pay in, the more you can take out. If you buy life insurance when you're up in your senior years, your premiums will be higher as related to retirement investment plans.
More, However, Isn't Always Better
Anyone can be insured; even kids and old people. But does it really make sense to insure certain people? Kids don't earn money. They don't bring anything into the household other than love and happiness. So even though losing a child is tragic, it's not a financial loss. Why would you carry insurance on someone who's not contributing financially to the household? There's no real value in insuring a child.
The same goes for old folks. They don't have a lot of time remaining. You won't get much of a death benefit. Senior insurance isn't usually a good idea in terms of an investment. Retirement investment thus should be done at recommended age.
The Best Thing You Can Do is Live
If you take out a life insurance policy, and you live, your policy returns nothing. You could take out a 20 year policy today, and if you haven't died within 20 years, your policy gives you exactly nothing. Your peace of mind comes simply from knowing that if you die, your family won't be impoverished as you have already bought the retirement investment plan. In this way, you don't consider insurance to be an investment, at least not in the conventional sense of the term.
Will You Ever Profit?
Likely not! If you're considering life insurance as an investment, you have to know that the best way it's ever going to pay off is if you die. So don't consider it an investment - consider it a replacement plan for your family.
Of course, you could buy policies that are a lot more complex than a typical life insurance policy, and that type of policy may have more of an investment value. But still, investing and insuring are two different things. Ideally, you're better off keeping your insurance and your investments such as retirement investments separate.
This doesn't mean that life insurance is never a good investment. It just means that you should look at what you're buying, look at what you're getting, and make your decision accordingly. When you invest, you're spending money in the hope of a future financial gain through your pension plans. Insurance can work as an investment, but it's not always your best bet. Shop around, and spend your money wisely and buy a profiting retirement investment plan.
When you buy permanent life insurance, part of the payments on your premiums go into a “cash value” account that can grow depending on how much interest is earned, what kind of dividends are realized, and how much you might make from mutual funds. You can borrow against these earnings for various things. Retirement investment thus is a type of life insurance that offers great benefits.
Is There a Risk?
Yes. If times get hard and investments aren't doing well, you might actually have to pay more on your retirement investment policy to keep it going. There can also be expenses and fees that can reduce your returns, so you have to be sure that you know exactly what your potential costs are associated with your pension plans.
Considering all of the above, it can still be a good idea to use permanent life insurance as an investment. Crunch the numbers, talk to your insurance agent, and decide what's best for you. And don't just stop with your agent - you can also get advice from an uninvolved third party. It's your money, so invest it wisely, and consider life insurance as a valuable and worthwhile part of your retirement investment portfolio.