How to Learn Investment Strategies With Life Insurance
Permanent life insurance products such as universal or whole life contracts provide coverage for the rest of your life as long as premiums are paid. Aside from providing lifetime benefits to beneficiaries, permanent insurance has the ability to create cash value. The cash value is determined by premiums paid into the account plus any earnings less the cost of annual insurance. Life insurance cash value grows tax-deferred making it an attractive savings vehicle for investors. Learning about insurance investment strategies starts with evaluating your insurance needs and determining investment tolerance.
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Instructions
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Contact an insurance agent or financial advisor to review your need for insurance. The agent will do a financial evaluation including a debt and asset analysis. Some of the significant considerations are total debts such as mortgages that would need to be paid if you died as well as how many more years you have to support your family before retirement.
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Request proposals that meet your insurance needs. Make sure you get a proposal for permanent and term policies. Term policies are not permanent insurance and only provide coverage for a specified number of years. There is no cash value in term insurance.
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Compare different policy options. Look at the cost of the term policy and the cost of the permanent policy. Subtract the difference in premium costs, calling this value "investment potential."
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Do online research regarding the types of investments that can be done in permanent insurance. These accounts offer fixed and variable rates of return. Variable rates of return are designated by mutual fund subaccounts. Compare these investment options to other investment options you could do with the "investment potential" value.
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Request a proposal using the "investment potential" value. Any financial advisor can provide you with a hypothetical proposal that takes the investment potential payments growing at a hypothetical rate of return. This return should match the hypothetical rate of return offered in the life insurance proposal. Look at the difference to determine if you would be better off buying term insurance and investing the premium difference outside of insurance. For some, this difference may not outweigh the desire to have permanent insurance for the family.
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Compare tax benefits. Remember that the insurance policy grows tax-deferred. Evaluate your tax bracket and the capital gains rate you will pay as taxable investments grow. You may also compare the rates to annuities which offer tax-deferred grow as well.
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Tips & Warnings
Insurance policies created as investments are called "accumulation accounts."
Evaluate all risks associated with investments prior to depositing money.
