When it comes to considering life insurance as an investment, you’ve probably heard the adage, “Buy term and invest the difference.” This advice is based on the idea that term life insurance is the best choice for most individuals because it is the least expensive type of life insurance and leaves money free for other investments. Permanent life insurance, the other major category of life insurance, allows policyholders to accumulate cash value, while term does not, but there are expensive management fees and agent commissions associated with permanent policies, and many financial advisors consider these charges a waste of money.
When you hear financial advisors and, more often, life insurance agents advocating for life insurance as an investment, they are referring to the cash-value component of permanent life insurance and the ways you can invest and borrow this money.
Using Permanent Life Insurance as an Investment
There are many arguments in favor of using permanent life insurance as an investment. The issue is, these benefits aren’t unique to permanent life insurance. You often can get them in other ways without paying the high management expenses and agent commissions that come with permanent life insurance. Let’s examine a few of the most widely advocated benefits of permanent life insurance.
1. You get tax-deferred growth.
2. You can keep your policy until age 100, as long as you pay the premiums.
3. You can borrow against the cash value to buy a house or send your kids to college, without paying taxes or penalties.
4. Permanent life insurance can provide accelerated benefits if you become critically or terminally ill.