If you have heard that life insurance can be an actual financial investment, you may be wondering how you can use coverage to prepare for a better future. Most people purchase life insurance for the death benefits, but some policies have additional features and benefits that differentiate them as an investment product. By understanding what type of policy to purchase and what to expect from life insurance as an investment reasonably, you can more easily determine how to set up your new coverage.
Choosing the Right Policy Type
Term life insurance is a product that most people are familiar with. With term life insurance, you select a term length at the time of purchase. Coverage remains in effect throughout the term length as long as the premium continues to be paid. Permanent life insurance also has death benefits, but it has two additional features. First, the death benefits remain in effect throughout the insured’s lifetime. Second, the policy has a cash accumulation feature. A small portion of each premium payment is deposited into the cash account. This is an interest-bearing account so that it will increase in value over time. If you intend to use life insurance as an investment, you must set up a policy that has a cash accumulation feature.
Setting Realistic Expectations
A life insurance investment is most closely equated to a savings account, but the return is usually substantially higher. Depending on the type of policy that you set up, you may enjoy a fixed or adjustable rate of return. Even though the return is usually higher than that of a typical savings account, the return may still be lower than what you may generate through many other types of investments. The return varies by provider and by policy, so explore the options carefully.
Your life insurance policy’s cash value can accumulate to a sizable amount of money over the years. This money may be accessed to make future investments, such as to make a down payment on a rental property or to invest in a business. You may also borrow against the amount if you wish to keep the life insurance policy benefits in place. Because features and benefits vary by policy and by the provider, it is essential to compare the options before setting up coverage closely.