Can Life Insurance be an Investment?

The short answer to this question is a resounding NO. There end of post…..

I get this topic proposed to me by clients all the time and it actually is a far more nuanced answer than above, let’s talk.

Life insurance is obviously just that, insurance benefits payable to heirs upon the death of an insured. It is first and foremost a risk mitigation plan. A specific and funded plan to protect your assets. The “investment” idea comes into play when cash accruing policies are in discussion. This is because AFTER cost of insurance expenses and other charges related to the coverage have been deducted from your premium, there will be an amount that collects and receives an interest credit annually (some monthly). It is due exactly to the fact that the principal premium going into this account is not immediately reflected in the cash value that I would never call this an investment. Any risk mitigation plan could never double as a true investment as the entire purpose is to shelter from risk, not partake in it.

HOWEVER; If planned correctly, a cash accruing policy (such as a universal life policy with various interest crediting methods) can create a supplemental benefit of a tax free source of income that generates you a profit on premium given. While maintaining your cost, you can also keep death benefits payable in conjunction with this supplemental benefit. A financial instrument with such great benefits can often be given the misnomer of “investment”, however ethically no advisor should ever conflate the two. A true investment will never have any financial guarantee attached. It will accrue or decrease from the initial contribution, anything in between is by definition a product or service being purchased and changes the nature of the transaction.

In summary, any advisor advertising any life insurance policy as an investment should raise red flags in the consumer’s eye. A thorough explanation of a policy capable of providing cash accrual benefits should never begin with the idea that it will serve as an investment for your dollars. This does not diminish the vast benefits and capabilities such policies can provide, and should only serve to help build trust within our corner of the industry.