Some people are interesting to use life insurance as an investment tool. The analyzers are saying different ways about the advantages and disadvantages of life insurance as an investment. Now we will see whether the life insurance can be used as an investment tool and what are the benefits and losses.
- The main aim of any insurance policy is to protect against the financial risk. When coming to the life insurance, it is financially secure the beloved family person or the beneficiaries of the policy when the occurrence of event of death of policyholder.
- The premiums in the whole life insurance is fixed. It provides consistent dividend according to the underlying conservative cash value by the company. It provides with stable incomes and good cash flow.
- Universal life insurance provides flexible premium payments. Interest rate is volatility.
- Variable life insurance consists of a variety of investment options. It offers to diversify money among stock, money market, bonds, etc. But there is market risk for the policy holder.
- With a lump sum payment the death benefit on variable universal plan may be increased.
- In case of universal life insurance policies, tax benefits are minimized by a variety of fees that consume at returns. These insurance plans may charge 4% to 6% on each deposit, account administrative charges, annual contract fees, and expenses on investment options. Thus, the actual cost of the policy is difficult to measure.
- Trusting the sales person is not always good. This is because they will get more commission when they sell more. It is better only after clarify with the company directly.
- The tax limit are applicable only for a limited amount.
- When the investment in life insurance exceeds than the tax limit, the person strictly have to pay.
- The companies which are financially strong may increase profitability on old insurance policies to keep their books solid.
- Insurance is meant for the needs in the long run. So people planning to purchase insurance for a short term are not sensible.
- When the policy owner wants to discontinue in the middle, sometimes the premiums he/she paid also not fully get. When within very short period discontinued from the policy the policy owner may not get anything.
Generally most investors consider the Return on Investment (ROI) when considering to purchase insurance. To decide ROI for insurance, you need to know premium, the number of policy years, and the amount payable at maturity.
Once you find the ROI, if the policy is likely to meet expectations, it is sensible to purchase it. Remember, the life insurance you purchase, there will be no market risk compared to investing the same amount elsewhere such as stock market. The ROI might be less. But it covers risk to your life. So it is always good to purchase insurance according to your actual future financial needs, and to invest in other channels according to your risk taking capacity.