Life insurance has long been advertised as “an investment in the future,” but I’m here to deconstruct that myth. Life insurance is not an investment, and if you’re hoping for some sort of financial gain by purchasing a policy, you’ll likely be pretty disappointed.
The idea that purchasing a life insurance policy is the equivalent to making a financial investment is a misconception perpetuated by dishonest insurance agents and misinformed consumers. And I think it’s time someone set the record straight.
Life Insurance Is Not an Investment
In my opinion, life insurance should never be advertised or viewed as a financial investment. In reality, it’s an opportunity to purchase protection against the unknown, and if you don’t have something to protect — like family, property, or business — it’s really not worth your money.
Thinking of life insurance as an investment can actually be detrimental to some people’s financial stability. Insurance policies are highly illiquid. They underperform stocks and bonds and are slow to generate any growth or return. It usually takes 15 or more years to see returns on life insurance policies, so anyone using this route as an investment needs to have a very long-term view of the process.
Consumers must understand that insurance agents get paid based on how much their customers pay annually for coverage. Many agents — especially those who work for large life insurance companies — tend to push more expensive and/or unnecessary policies to generate higher commissions. They’ll often back up their recommendations by advising the customer to consider the policy a financial investment.
At the same time, few consumers know enough about life insurance and the different types of policies to be able to recognize when they’re being pressured into an unnecessary or overly expensive policy. On that note, here are a few details that consumers need to know before they purchase a policy:
- Working with the right agent matters. Not all agents are in it purely for the money, but some are. Find an agent you trust who will educate you on all the options appropriate for your life. If you feel pressured to purchase one specific type of policy, seek advice elsewhere before making a decision.
- Term life insurance is usually enough. Term life insurance — insurance designed to cover you for a specific length of time, like 10, 15, 20, or 30 years — is enough coverage in most situations.
However, I recommend getting a permanent or cash value life insurance policy if your family will need liquidity to pay estate taxes when you pass away. You should also consider a permanent policy if you have a child with special needs who will always need financial support.
- There are many different types of permanent policies. Today, whole life, universal life, variable universal life, and indexed universal are the main types of permanent life insurance available. They all have different features and benefits — like offering flexibility in death benefits and annual premiums versus guaranteed cash value and premiums — so it’s best to work with a qualified agent when picking the policy that’s best for you.
- There’s a difference between “growing” and “investing” your money. You can put your money into a life insurance policy and grow a little more cash value through that policy, but it will take 15 or more years, and it will never make you rich. If you’re wanting to turn a financial investment into something profitable, look to things like stocks, bonds, mutual funds, and investment real estate instead.
The way I see it, there’s no such thing as “investing” in life insurance. If you want to grow your money, take it to a money manager, not an insurance agent. But if you want to purchase protection for the future, working with the right agent to find the proper life insurance policy is the way to go.
Liran Hirschkorn is an independent life insurance agent and founder of BestLifeQuote.com, a national life insurance agency. His mission is to help individuals across the U.S. find the best rates on life insurance, specializing in helping those who have previously been declined coverage. Liran’s expertise is in high-risk life insurance and understanding the unique underwriting guidelines of more than 30 life insurance companies.
Photo: Chris Potter