Should Life Insurance Be Considered Part Of Your Investment Portfolio?

There are a number of ways to invest in your future. While stocks are the most common option, life insurance can be a profitable investment. However, while some financial analysts suggest this investment strategies, others discourage it. Should you add insurance to your portfolio? Take the time to learn everything you need to know before making this investment.

Should Life Insurance Be Considered Part Of Your Investment Portfolio?

What Is Whole Life Insurance?

According to Investopedia, whole life insurance is “A life insurance contract with level premiums that has both an insurance and an investment component. The insurance component pays a stated amount upon death of the insured. The investment component accumulates a cash value that the policyholder can withdraw or borrow against.”

Why Is It a Good Investment?

One of the benefits to this investment is that the premiums stay the same. If you pay $1,000 a year when you’re 20, you’ll pay the same thing at 40 and 50. This means you will be overpaying in the early years of the policy, but it evens out as you get older. If you lapse on any given year, you will be given the cash value of the policy, minus any cancellation fees. Once a year you will be told the cash value of your insurance. This type of insurance can help fill a void. If you need long-term insurance, why not invest in something that will have a cash value?

What Is It Not?

It will take several years for you to see any real value from your investment. In fact, the first year your cash value will more than likely be zero. In the first few years, the cash value will remain a small fraction of the premiums you’ve paid. According to pros like Timothy Sykes, some analysts state that the only person who makes money from a whole life insurance policy are those that sell the policies. Another issue with this type of investment is always being in the dark. You have no idea in advance of what the rate of return will be or how much will be invested.

Should You Add Insurance to Your Portfolio?

It depends. While some policies can see a return quite quickly, others take years and years to show a profit. If you’re buying long-term life insurance, and have other investments, you may as well purchase a whole life insurance policy. The key is to not think about the insurance as an investment, but something you need to protect your loved ones. If it becomes profitable, great. In other words, don’t invest in this policy as your only means of retirement funds.

Insurance can be a good investment for your portfolio, but it should be considered only when you’re in need of insurance. If you don’t have a need for life insurance, put your money into more profitable investments.

Image Credit: Wikimedia Commons