Life insurance is typically used as a tool to care for your loved ones after you pass. But you can also use life insurance as an investment during your lifetime. You can only utilize whole life and universal life insurance as an investment. This is because they have a cash value. You accumulate a cash value by paying premiums. A portion of these premiums goes towards the cash value and grows overtime. Once you have built up a substantial cash value there are several ways you can access it. In this article, we will go over 5 ways you can use life insurance as an investment.
Getting a Loan from the Policy
Once you have built up enough cash value, you can take a loan from your policy by using your cash value as collateral. There are some caveats to this. First, if you do not repay the loan, it will reduce the death benefit your beneficiaries receive. Additionally, if your loan exceeds your total cash value, your policy may lapse.
Supplement Your Retirement Income
Once you grow your cash value you can tap into it to use as retirement income. Again, the amount you will take out will reduce your death benefit.
You Can Use Your Policy as Collateral for a Loan
You can use your life insurance policy to make it easier to get approval for a loan. Or maybe even get a better rate. If you die before repaying this loan, what you owe will be taken out of the death benefit your beneficiaries will receive.
Accelerate Benefits
Your policy may allow you to receive benefits during your lifetime, under certain circumstances. These circumstances would include medical emergencies like cancer, a heart attack, or kidney failure. Depending on your policy, you can access 20-100% of your policy’s value.
Surrender Your Policy
Surrendering your policy means you are cancelling your coverage. When you do this, you will receive a return of your cash value, minus any insurance carrier fees. It is important to be aware that your life insurance company may charge hefty surrender fees.
Pros and Cons
As with any investment, there are pros and cons to using life insurance as an investment. Some of the pros include having a steady stream of income during your retirement. Second, cash value grows on a tax-deferred basis. This means you do not pay taxes until you withdraw them from your account. Lastly, a life insurance policy can be useful to pay large expenses like your mortgage or college.
Some of the cons include the pricing. Permanent life insurance is pricier than term coverage. Second, if you end up with more coverage than you need you will pay unnecessarily large premiums.
Setting Up Your Life Insurance as an Investment
If you find that using life insurance as an investment is right for you, you will want to purchase a life insurance policy right away. Meet with a qualified insurance agent to get started on a policy that will fit your needs.
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