Can life insurance serve as a financial investment?

Life insurance as an investment

Life insurance is a financial investment for some. For most people, though, life insurance is primarily to provide money and benefits for those left behind after the insured dies.

As a financial investment, some life insurance policies create cash value that the insured can borrow against or withdraw. Income tax is deferred until the money is withdrawn and exempt if the money is paid out as a death benefit.

If money is withdrawn from the policy, that reduces any benefits paid out at the time of the insured’s death. A permanent life insurance policy is the only type that can act as a savings account, as a term life insurance policy does not gain equity.

Life insurance companies provide replacement income for family and dependents left behind, so that they are not in financial trouble without the insured’s income. Life insurance can also pay funeral costs, as well as other costs to administer the estate of the insured. Life insurance can also provide money for heirs, even if there is no other inheritance available.

Life insurance can also potenitally pay for estate taxes, so any heirs or beneficiaries are not financially responsible for those costs. In addition, an insured can name a charity as the beneficiary, in order to make a contribution that is usually much larger than the cash equivalent of the premiums paid.