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How is Life Insurance an Investment?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 27 August 2016
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    2003-2016
    Conjecture Corporation
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Some people consider life insurance an investment opportunity that has the potential to pay off in a significant manner. Others wonder if it is even proper to classify an insurance policy as being a true investment tool. The fact is there are a couple of very good reasons to consider life insurance an investment worth pursuing, especially as the asset relates to planning for retirement.

There are different types of life insurance, with each type providing its own set of benefits to the insured party. Choosing the right life insurance investment involves identifying just what the investor wishes ton accomplish with the coverage. If the idea is to essentially create a death benefit that can provide beneficiaries with the funds to pay off any end-of-life expenses and perhaps have a little left over, then it makes sense to consider term life insurance an investment worth including in plans for the future.

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For individuals who not want benefits above and beyond a death benefit, whole life insurance policies may be the way to go. Sometimes known as cash value insurance, whole life is a type of life coverage that incrementally builds a cash value that can used as collateral or even drawn upon in the event of an emergency. There is usually the option to repay any balance that is withdrawn, which in turn keeps the death benefit at the maximum. As a nest egg that can be used in later years if needed, it makes sense to consider whole life insurance an investment that can provide a great deal of financial security as well as peace of mind.

Another reason to consider whole life insurance an investment worth pursuing involves the tax breaks offered in many nations to encourage the purchase and maintenance of life insurance coverage. Depending on the country of origin, there may be opportunities to receive tax breaks on any payments into the plan during a given tax year, or incur little to no tax liability when disbursements are made from the plan in later years. While it may be argued that the same purposes could be achieved by purchasing other types of investments and holding them over the years, the fact is that conservative investors sometimes prefer the relatively low risk involved with insurance as an investment opportunity. By taking the time to understand what benefits life insurance can provide within the context of an individual’s situation, it may be a very practical solution in the long run.

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