How Can A Whole Life Insurance Policy Be Used As An Investment?

How can a whole life insurance policy be used as an investment? Some life insurance policies pay a set amount of money to your beneficiaries if you die some time within the duration of your policy. Other life insurance policies, such as whole life insurance, allow you to use the policy as a financial tool as well.

Some life insurance policies pay a set amount of money to your beneficiaries if you die some time within the duration of your policy. Other life insurance policies, such as whole life insurance, allow you to use the policy as a financial tool as well. Whole life insurance can provide you with coverage for your loved ones while it simultaneously builds savings that you can use in many ways.


One of the ways that a whole life insurance policy can be used as an investment is simply by its virtue of building cash value that earns interest. Joe Sostarich, a 26-year veteran of life insurance sales and management tells us, "Whole life insurance policies accrue a cash value over time, unlike term life insurance. Term life insurance does not have any value other than the face value that it will pay to your beneficiary upon your death." The cash value that a whole life insurance policy builds over time can be used by the insured while he is still alive, whereas the only person to ever benefit from term insurance is the beneficiary. The cash value that a whole life policy accrues can either be accessed by surrendering the policy and cashing out, or by taking a loan against the cash value. Some people may choose to cash their policy out when they retire in order to supplement their retirement income. If the policy is cashed out, there may be a surrender fee. In addition, the cash value that you accrue on a whole life policy is tax deferred which makes it a good option for saving your money.




Another way that a whole life insurance policy can be used as an investment is through the use of a whole life annuity. If your whole life policy is set up with an annuity, you will receive payments after a set number of years that will come at regular intervals for the rest of your life. For example, if your annuity is set up to begin when you are 65, you can receive a regularly monthly payment that is drawn from your built up cash value for as long as the value lasts. This is an excellent way to insure a steady income during your retirement years. In this way, your life insurance policy can also double as a retirement plan.

People with great wealth often will use whole life insurance policies as a way to pay off estate taxes when they die. In this way, an insured's heirs will not have to go through hardship in order to claim their inheritance. Because of the tax-deferred status of the policy, the whole life policy can be a good tool for protecting other investments against high estate taxes.

Whole life insurance policies guarantee a certain rate of interest on their accrued cash value much like a savings account. While a guaranteed rate may seem attractive, it may be possible to get a higher return with other investment tools such as IRA's or mutual funds. A whole life insurance policy should not be used for investment purposes alone; however, if you need life insurance it can be an additional amount of protection for your future.

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