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Using Life Insurance as an Investment

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Are you in need of life insurance? Are you also interested in investments? Why not look at getting life insurance that will also be an investment? Although it is not for everyone, purchasing a life insurance policy, a dividend paying whole life insurance, for example, could have investment potential.

If this is something of interest to you, you will need to qualify for some form of permanent life insurance. There are two key features to a permanent life insurance policy: the coverage for your entire life and a cash value element. The cash value is what you will want to focus on.

Each monthly premium payment you make, a portion goes into a savings-like account or the cash value. This accumulates over time and is tax-free until withdrawal. You can take a loan against your cash value to use for whatever you like. If you do not pay back the amount though, the loan is deducted off of the death benefit.

How Is It An Investment?

The cash value of your permanent life insurance policy is an investment. Each month it will grow, as long as you keep paying your premiums. Because it is a permanent, your coverage won’t expire until you pass away. It is coverage for life. So the cash value will continue to grow.

If you purchase a dividend paying whole life insurance, your policy receives dividends from the insurance company. What this means is that you receive a portion of the company’s profits for the year. Typically there is a guaranteed percentage your policy will earn.

The policyholder has the potential to increase the number of dividends the policy earns. If you contribute more to your plan, your return subsequently increases. So, the more you put in, the more you get in return.

What Can I Do With the Dividends?

There is a variety of options as to what you can do with your policies dividends. There are four common options people will do:

  • A cheque from the insurer;

  • Put the amount towards premium payments;

  • Purchase additional insurance; or

  • Leave the dividends with the insurer to gain interest.

By using a dividend paying whole life insurance (also known as participating whole life insurance), the dividends are tax-deferred. This is because the insurance companies made money off of the policyholder. Essentially the dividend is a refund for overpaying your premium.

Is It Worth It?

The big question, is using a life insurance policy as an investment worth it? It all depends on what you are hoping to get out of it and how much you are willing to put into it. Going for a permanent life insurance policy is the more expensive option. But in time, the return on investment could out way the monthly premiums.

If this is something you are interested in, make sure to find a trusted and reliable insurer. Understand all aspects of your insurance policy, including any fees, guaranteed rates (if any), how the dividends are calculated and what your plan for the additional income is.


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