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Optimal Finance Daily - Financial Independence and Money Advice
3455: Is Life Insurance Really a Good Investment? by Jeff Rose of Good Financial Cents on Long-Term Security
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Jeff Rose breaks down the key differences between term and whole life insurance
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This is optimal Finance Daily Is Life Insurance Really a Good Investment? By Jeff Rose of GoodFinancialSense.com Most people want to know their families will have a secure financial future. When you start planning for how you'll care for your family years from now, it's likely that you'll consider a variety of options. Life insurance should be among the possibilities you study. Life insurance protects your assets and offers you a chance to help keep your family in a comfortable lifestyle after you're gone, or even assist a grandchild with paying for a college education. Depending on the life insurance you choose, you could even draw cash from the policy in the event of an emergency or a promising opportunity. There are two basic types of life term life and whole life. People value the two for different reasons, and they offer diverse benefits. Each of them has a different set of advantages and disadvantages that you have to weigh. Here's a little more about the term life insurance. Term life insurance is life insurance for a set amount of time or term 10, 20, or 30 years. If you die before this time is up, your beneficiaries will be paid the face value of your policy. This investment option comes at a lower premium cost because the cash value of the policy does not increase with time, and it's often more in tune with a person's budgetary restrictions. Whole Life Insurance A whole life policy lasts for as long as you live. Your beneficiaries will receive a payout equivalent to the value of the policy you purchased, plus interest and other cash deferred amounts. Life insurance Rates are more expensive for whole life insurance policies, but the returns can be much greater if you have the time and financial resources to devote to building this resource. You can also use the savings you built here for other purposes if you choose and while you're still alive. What should you choose? The right form of life insurance depends on your needs and goals for your future. Those with money available to spend might benefit from a whole life policy and the effects it can have on their estate planning. Term life policies are a little more flexible. If your budget changes or if you have other changes you encounter with the passing of time, term life insurance is going to be the cheaper of the two options. But is cheaper always better? These policies will save you money, but don't have the added benefits of accumulating cash value. One thing that most financial experts will tell you is to buy a term insurance policy and then invest all the money that you save. This may work in a lot of cases, but it's not always the best option. Whole life insurance provides more of an investment option with its cash value benefit. With these policies, the plan builds up value inside of it that you can use later to borrow against if you need. You could use this money in the case of an emergency or to invest. A lot of people like to use whole life policies as an investment because the money grows in the policy tax deferred, meaning that you won't pay taxes on the interest. This is a great way to avoid paying more taxes than you need. The best advantage to a whole life insurance policy is the fact that your loved ones will see the return on your investment. Sure, you can put money into the stock market and hope that your children see the money in the future, but you never know what's going to happen to those investments. Life insurance is one of the few investments that you can be positive that someone will see the return on. Ultimately, you may find that a financial advisor or other professional will be best suited to help you choose the right policy to help fulfill your goals. A trained individual will know how to look at your needs, assets and other factors to appropriately counsel you as you map out your future. They'll be able to help you decide between investing what you save or paying a little extra for a whole life policy and use the cash value. Regardless of which type of life insurance you buy, it's vital that you purchase a policy. These policies are not only a good investment, but a safety net that you can't afford not to have. And could your family afford for you not to purchase a life insurance policy? An accident could leave them paying off many expenses in your name. Would your spouse be able to pay the mortgage? What about the car payments and the student loans? If you sit down and think about it, there are thousands of dollars of debt that you would leave behind. The idea of leaving your family with a stack of bills they can't pay for is terrifying. This is why the benefit of life insurance is so important. It allows your survivors to quickly pay down debts and take stress out of the grieving process. One way to look at life insurance is as an investment to your loved ones. Sure, you might not see a ton of return on your premiums, but your family will. For your family, this is one of the best purchases that you can make, regardless of what type you buy. In most cases, life insurance policies are more affordable than most applicants think. Depending on the size of the policy, your age and your health, you can easily fit a policy into your budget. You just listened to the post titled Is Life Insurance Really a Good Investment? By Jeff Rose of goodfinancialsense.com the new.
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Okay, I'm going to wholeheartedly disagree with this article. Life insurance is not an investment and the only people who say it is are the people selling life insurance. It's an insurance product that serves as a replacement for an economic loss to support your dependents should something happen to you if you have dependents. It's a really good idea to buy term life insurance and it's very affordable. But please do not buy a permanent life insurance policy, also known as Whole Life, Universal Life, indexed Universal Life, Variable Life, etc. An insurance policy that accrues a cash value and is pretending to be an investment has to underperform the underlying investments to make room for the insurance company's profits and large sales commissions or else the insurance company would go out of business. Forbes reported that it would take 35 years for a policyholder's cash value to exceed what they paid into the policy. So, for example, if you paid $300 per month in premiums for a whole life policy, after 35 years, your cash value would be $126,000. If you were to take that same $300 per month and invest in index funds, you'd have over a million dollars in that same time period. Also, if you lose your job or you have another life circumstance that would prevent you from investing $300 per month in, you can just stop investing and the money you already have in the market will continue to grow. But with an insurance product, if you stop paying that $300 per month, you lose the policy and all the money you already paid into it. So that'll do it for this episode. Have a happy rest of your day and I'll be back with you again tomorrow where your optimal life awaits.