If you are looking for unique ways to bring in some extra cash, or build up an investment, try taking a look at life insurance. Although it can be a little tricky and a bit expensive at the start, it is possible to use a life insurance policy as an investment.
The type of policy you need to get is a permanent life insurance plan. It is not a policy that is for everyone. But if you want to invest, this is the plan to go with.
There are two main features of a permanent life insurance policy. The first is it is coverage for life. It cannot be cancelled,and the premiums do not change. The downfall, though, it is more expensive at the start. The other feature, the element that is critical for the investment, is cash value.
Let’s take a look at how permanent life insurance can be an investment and make you money.
How Does it Work?
The cash value element of permanent life insurance is what you want to focus on. Each month you pay a premium. Part of that premium goes to paying for your protection. The other part goes to the cash value. Think of this element as a saving account for your policy. Each month you deposit a little bit into the account.
Since a permanent policy does not expire (unless you live to be over 100 years old or stop paying the premiums), your cash value will always increase. So if you start young, you can watch that value grow month after month for many years to come.
You can withdraw from your cash value. However, once you take it out, it does become taxable. But if you are looking to buy a house or pay for college, this value could be beneficial. If you do not pay back the cash value, the difference comes from the death benefit. That is the risk since your beneficiary will not receive as much money.
You can also get a policy that has a dividend feature. What this does is it allows your policy to earn money from your insurance companies’ profits. This feature is tax-deferred since the company is gaining off of the policyholder. You can then have the money sent as a cheque, use it for future premium payments or leave the dividends to earn interest.
Is It Worth It?
Here is the million dollar question – is this all worth going through? It depends on what you are looking for. If you want to have access to money consistently, then maybe this option isn’t the best. But if you’re going to build up an investment over time, then going with a permanent policy with the cash value or dividends may be worth it to you.
Whatever you decide, shop around between insurance companies and learn about whole life insurance rates. Since the insurance company is at higher risk of having to pay out the death benefit, the rates will be higher than going for the cheaper alternative of a term policy.