How to Use Life Insurance For Investment Purposes

Assess your financial situation

Begin by evaluating your current financial status, long-term goals and risk tolerance. This assessment will guide your choice of life insurance policy.

Consult a financial advisor

Though this step is optional, a financial advisor can provide expert advice tailored to your financial situation. They can help you navigate the complexities of life insurance as an investment.

Choose the right policy type

Based on your needs and goals, select a life insurance policy that offers investment opportunities. Typical examples are permanent policies like whole, universal and variable life insurance.

Understand the costs

Be aware of the premiums, fees and other charges associated with your chosen policy. These costs can impact the growth of your cash value and the overall returns of your investment life insurance.

Monitor cash value growth

Once the policy is active, keep an eye on the cash value component. This is the part of the policy that can be used as an investment.

Leverage your policy

Utilize the cash value for loans or as collateral for other financial needs. Be mindful of tax implications when making withdrawals to maintain the integrity of your life insurance investment plan.

Review and adjust

Regularly review your policy and its performance. Make adjustments as needed to align with your evolving financial goals and market conditions.

Anthony M. Calabrese

Senior VP and Director of Income Planning at Beacon Wealth

Could you explain how one can leverage their life insurance policy for investment purposes?

Insurance is and should be insurance first, and the planning needed for insurance should be kept separate from its investment benefits. However, once the need for insurance is covered and all other savings and investment needs are tackled (401K, HSA, investment accounts, Roth IRAs, etc.), one can use insurance as an additional tax-favorable investment vehicle. It can and will serve a great investment function within an overall investment portfolio if properly designed. The keywords are "if properly designed."

Are there any notable risks when using life insurance as an investment?

It depends on the policy type used, but all investment vehicles certainly come with risks, including policy lapse risk, tax risk and insurability and fee risks.

How should one balance the risks and benefits of a life insurance policy as an investment?

Careful design, management and working with a qualified professional. Essentially, depth planning.

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