There are many ways you could invest your money when planning for your future. For example, most people opt to put pre-tax dollars into the 401k plans offered by their employers. Some businesses even provide matching funds up to a certain percentage, allowing contributors to double the amount of money going into their retirement accounts. You could also hire a stockbroker and open an investment portfolio complete with stocks, bonds, mutual funds, and so on. And some people choose to put money into CDs, savings, and supplemental retirement accounts like Roth IRAs as a means of ensuring that they’ll be well taken care of long after the age of retirement. But there’s one investment you may not have considered: whole life insurance.
Life insurance might not sound like an investment opportunity, but the right policy can be. Term life insurance offers you only the opportunity to leave money to a beneficiary in the event of your death (during the term of your policy). But a whole life policy could provide for additional benefits. Aside from the basic coverage, which allows you to select the amount of money that will be paid out in the event of your death, some whole life policies also allow you to break up your premiums into two portions, with the second amount being allocated to a “savings” account of sorts.
The particulars of such a plan will depend on a number of factors. Like any life insurance policy, the cost for your premium will be based on your age at the time you purchase the policy, your relative state of health and lifestyle choices (i.e. risk factors), and the amount of insurance coverage you prefer, amongst other things. But once you’ve squared away these details, you can determine how much you want to put in toward the savings portion of your account. This money, in turn, will be invested by the insurance provider (although you may be able to provide some direction, depending on the provider and the policy).
But how does it work as an investment? The portion of your premiums that gets invested for you will be available for withdrawal at some point. In fact, most whole life policies contain specifications dictating an age (65-70, for example) at which funds must be withdrawn, usually in increments to be doled out annually. In essence, you are taking out a loan from yourself, tapping into your “savings,” complete with interest. And any money remaining when you pass away will be added to your insurance policy payout and given to your beneficiary.
There’s even more to love about this type of plan, though. When you “borrow” from the account, you’ll do so at low or no interest. And if you’re unable to pay your insurance premiums at some point due to job loss or other financial setbacks, any funds you’ve built up in your savings will be drawn upon to cover the cost of your monthly or annual insurance payments so that you don’t lose coverage. Plus, you can back-fund whole life policies in ways that other accounts (IRAs) don’t allow. In short, whole life insurance is a very wise investment for those that have the forethought and funds to purchase it.