Life insurance used as an investment vehicle may offer more than just death benefits. It may aid in the planning of your financial future by helping develop an investment or savings account. Term life insurance typically only offers death benefits, whereas, permanent life insurance has variations like universal or variable life insurance policies that are strictly geared to help build your portfolio as well as provide death benefits.
Before you may decide if life insurance as an investment is a route you want to take, you may want to understand the different varieties of life insurance that may offer investment packages. Each typically has its advantages and disadvantages and you should know them to help better weigh your options.
Universal Life Insurance as an Investment
Universal Life Insurance is a type of permanent life insurance that provides death benefits and a savings account. This could allow for flexibility that may be an advantage as this cash component allows you to stop making payments on the premium (or make reduced amounts) as long as the cash value supports the premium. Additionally, you may also be able to increase or decrease the benefits over time. You may usually be able to borrow against the policy to receive a loan should you find yourself in need of some quick cash. For more information, see the article “Benefits of Universal Life Insurance.”
Variable Life Insurance as an Investment
Variable Life Insurance is whole life insurance coverage that also has an investment portfolio with it. The money value may typically be invested in your choice of money market, stocks or bonds. Money values and death benefits will generally contrast based on the actions of your portfolio. The death benefits may commonly have a base although there are no assurances on the money value. The payments for this policy may be a bit pricier than it is for the universal life insurance with added risks of low investments. If this should occur, you could lower your death benefits considerably. So, if your investments thrive, you may have extraordinary gains along with a large increase in your death benefits, making life insurance as an investment a potentially solid option.
Tax Advantages of Life Insurance as an Investment
There are some tax issues you may want to take into consideration before using life insurance as an investment tool.
- Death benefits are usually not taxable as income to the beneficiary
- Cash value may grow over time tax free
- You can gift a policy to another person.
To get more information on the steps to take to use your life insurance as an investment vehicle, it may be a good idea to get quoted for a policy!
