Life Insurance Vs. Investment

Life changes such as getting married are a good time to re-evaluate your life insurance needs.

Life changes such as getting married are a good time to re-evaluate your life insurance needs.

Any well designed personal financial plan should include life insurance, savings and investments. Sometimes the lines that separate these three distinct financial products get blurred, because certain types of life insurance include saving and investing components. When it comes to planning your budget, examine all three of these categories separately for best results.

Identification

Savings is money that you set aside for emergencies or for big ticket items. These funds should be kept in a safe account that is readily accessible, such as a bank savings or money market account. Investments involve risk, but are also expected to produce a higher rate of return than savings. Investments may include stocks, mutual funds and real estate. Life insurance is a policy that promises to provide a monetary settlement to help provide for your loved ones in the event of your death.

Whole Life Insurance

Most of the life insurance policies sold in America are some form of whole life insurance. Whole life is so named because it covers the policy holder from the time it is purchased until death. It typically cannot be canceled except for non-payment of premiums. Whole life includes a savings component that pays a low rate of interest, but can build up considerable cash value over the years.

Term Life Insurance

Term insurance is pure insurance that covers you for a specific period of time, or term, such as 10 years or 20 years. If you die during the term, the policy pays your beneficiaries the stated amount of the policy. If you are still alive at the end of the term the policy expires, although some policies are sold as guaranteed renewable policies. This kind of insurance policy does not build any cash value, but is considerably cheaper than whole life insurance.

Keep Investments and Insurance Separate

CNN Money advocates keeping your insurance and investments separate. Whole life insurance may be attractive because once you have it, you can't lose it if you become ill. But whole life insurance is also expensive, so it may be difficult to afford the premiums to get the coverage you need. Whole life insurance should not be used for savings or as an investment because the return on your premiums in the form of cash value is low in comparison to other investment choices. Typically, you are better off purchasing a higher face amount of term insurance at a much lower premium and investing the difference in higher yielding financial instruments.

About the Author

I have a voracious curiosity and love research and interviewing people for articles. Having lived in the Nashville, TN area since 1994, I write heavily in and for the Christian entertainment industry. In 2003, I began working with a publicity firm in L.A. and have now added movies to my list as an arts reviewer. I maintain relationships with industry professionals within the recording, publishing, and filmmaking industry. I have written for several websites, magazines and newspapers, coporations; contributed to several books, and am a published playwright. When I'm not wearing my writer's hat, I enjoy all types of gardening, theater (both on and off the stage), crafts, cooking, baking, playing the piano and harp and playing with our three goofy dogs.

Photo Credits

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