Life Insurance vs. Mutual Funds

Now that you're at the point where you're settling into the comfortable routine of life with your partner, it's time to start thinking about your financial future. If you've done any investigating into the myriad financial products out there, you've undoubtedly come across the terms "life insurance" and "mutual funds." While they are two very different products, they can both be part of your long-term financial plan.


Life insurance is designed to provide missing income to your beneficiary upon your death. Your beneficiary can use the money to pay off bills, eliminate the mortgage or simply maintain the same standard of living. Mutual funds are investment vehicles in which money is pooled from a large number of investors and spread over investments like stocks or bonds. Investors buy shares, which represent an ownership stake in the fund. Mutual funds are managed by an investment professional known as a fund manager.


The main purpose of life insurance is to provide financial security for your loved ones upon your death. Investors typically purchase mutual funds as a form of long-term investment in the hope that their value increases over time. In a nutshell, you could say that life insurance provides a death benefit, while mutual funds provide a living benefit for the shareholder.

Combining the Two

A type of life insurance known as variable life insurance combines the protection element of insurance with the investment component of mutual funds. With variable life, a portion of your premium dollars goes toward paying the insurance costs, while the rest is placed into a separate investment account that often consists of mutual funds. This can make variable life an attractive product for people who want to have the protection of insurance and the living benefit of an investment product in one investment vehicle.

Buy Term and Invest the Difference

A twist on the variable life option is to employ the strategy of "buy term and invest the difference." With this method, instead of buying a variable life policy, you purchase a less-expensive term insurance policy that provides the needed insurance protection but does not accumulate cash value. You then use the money you save on insurance premiums to purchase mutual funds of your choice.

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