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Tax Blog

Whole Life Insurance as an Investment Vehicle

Many of you have probably seen advertisements on using life insurance as an additional investment opportunity, that promise amazing rates of return and the ability to withdraw money tax-free. In this blog, we will explore the different types of life insurance and provide information that you can use to determine if using life insurance as an investment vehicle is the right option for you.

The Basics

Life Insurance generally falls into two categories: term life or whole life. Term policies cover a predetermined number of years and are generally cheaper than whole-life policies. Term life policies do not have a cash value component and thus can’t be used as an investment vehicle like whole life policies. Whole life insurance policies are often marketed as investments because they allow you to save and grow money while paying for your life insurance policy. Whole life policies are more expensive because an insurer will have to pay on the policy whereas a term policy may expire before death.

Who Should Buy Whole Life Insurance?

For the average person, it is typically not recommended to buy whole life insurance as it can be cost-prohibitive if that is their only investment strategy. For people with large estates, whole life insurance may be a worthwhile investment. When you pass away, your heirs are faced with a potentially large tax bill, as of now, the current maximum estate tax rates are almost 40 percent. Using a whole life policy, you can shield considerable amounts of cash assets from being taxed. A whole life policy may also be helpful preserves. Proceeds from the policy can cover any financial losses caused by your death and help to provide funds that are necessary to keep the business running in the future. For those that have already reached their maximum contribution amounts for traditional retirement accounts, a whole-life policy may be a consideration because you can contribute as much towards the premium as you’d like to increase the overall cash value.

There are many factors to consider when looking at investments, please consult a financial and/or tax advisor to find out if a whole-life policy is in your best interests. For more information about whole life insurance policies, please contact the professionals at The Center for Financial, Legal, and Tax Planning Inc.

*Disclaimer – The information in the article above is only for general informational purposes. It is not to be construed as financial, legal, or tax planning advice. Please consult with your financial and/or tax advisor before making any financial decisions.


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