Investing in Life Insurance
Stocks, bonds and real estate can produce relatively short-term gains under the right circumstances, but you have numerous investment options, including permanent life insurance.
Life Insurance Benefits
Life insurance provides your beneficiaries with a tax-free lump sum in the event of your passing. This can help cover expenses like mortgages, educational needs or debts, relieving financial stress during a challenging time. Investing in permanent life insurance serves multiple purposes beyond a death benefit, which may include the following:
- Estate planning and wealth transition—If you have a significant estate, life insurance can help cover estate taxes and help facilitate a smoother transition of assets to the next generation.
- Investment component—Certain types of life insurance, like whole and universal life policies, include an investment or cash-value component, which may help you build wealth over time.
- Supplementing retirement—With a carefully chosen policy, you may be able to create an additional income stream during retirement.
Permanent Life Insurance Options
Numerous types of permanent life insurance can produce a return on your investment, including the following:
- Whole life insurance may provide a guaranteed rate of return on the cash value portion. While the rates are generally conservative, they can offer a stable and low-risk investment opportunity.
- Universal life insurance is a more flexible form of permanent life insurance that allows the policyholder to adjust premiums and death benefits. The interest rate for the cash value is usually pegged to market conditions, and while it has a guaranteed minimum, it can achieve higher returns when interest rates are favorable.
- Indexed universal life insurance is a type of universal life insurance that links the cash value’s growth to a stock market index like the S&P 500. While there’s usually a cap on the returns, there’s also often a floor, so you may be less likely to lose money compared to direct stock investments.
- Variable life insurance may allow you to invest the cash value in sub-accounts that can be comprised of various stocks, bonds or mutual funds. The return is highly dependent on the performance of these investment options. This type comes with higher risk but may also offer the potential for higher returns.
- Variable universal life insurance is a hybrid of variable and universal life insurance. It can offer the premium and death benefit flexibility of universal life while allowing the policyholder to invest the cash value in sub-accounts, similar to variable life insurance.
This list is not exhaustive. Consult your agent to understand your options and how they may apply to your situation.
While the investment feature of permanent life insurance may be attractive, it’s crucial to weigh the costs and potential returns carefully. Fees and premiums for these policies can be high, which can affect your overall returns. Always consult a financial advisor or insurance professional to fully understand the risks and rewards of using a permanent life insurance policy as an investment vehicle.
The decision to invest in life insurance is a monumental one, and it’s a journey that you don’t have to embark on alone. Interstate Insurance Services in Newton, Iowa, is committed to guiding you through the complex maze of options to arrive at a solution that’s appropriate for your situation. Contact us today to start exploring your life insurance options.