from ezinsurance.com.au:

There is no doubt that investing for the future is important, but insurance shoppers need to know the difference between investing and buying insurance. This article explores the reasons why life insurance may not be the best investment. While the subjects of life insurance and investments often become intermingled, for most people it may be better to keep those two subjects entirely separate. While life insurance policies, particularly costly whole life policies, are often sold as investment vehicles, in most cases those shoppers would be better off buying less expensive term life insurance and investing the savings.

One of the reasons that life insurance is generally an unsuitable instrument for long term investing is the fact that these products often come loaded down with fees, expenses and other charges. These high fees can easily eat into even the best investment returns, rendering the investment inferior over the long run. Worse yet, many times the fees associated with whole life policies are buried in the fine print, and it can be difficult for the average insurance shopper to determine exactly what charges are associated with each policy offering.

It is also important to keep in mind that many whole life insurance policies offer generous commissions to the salespeople who offer them, giving those salespeople a vested interest in recommending one policy over another. It is important to determine how the agent is paid in order to look for any potential conflict of interest.

Perhaps the most important thing for life insurance shoppers to keep in mind is that the purpose of life insurance is to provide protection to the policyholder’s family in the event of their death. The death benefit is the most vital part of any policy, and it is important to focus on the amount of that death benefit compared to the required monthly premium required to maintain that level of coverage.

In most cases that calculation will lead shoppers to term life insurance instead of whole life. Term life insurance is generally much less expensive and much less complicated. There is no investment dimension; it simply provides a death benefit that the family can use to replace the breadwinner’s income. While investments are important, it is generally a good idea to choose the best term life insurance policy and invest the difference in cost in a quality low cost mutual fund or brokerage account.

The bottom line is that investments are important and so is life insurance. By looking at those two necessities as separate entities is will be easier to get the best deal on each one and to choose the level of protection and investment that is most appropriate. Separating life insurance from investments also makes it easier to review financial assets and make any adjustments as time goes on. Both insurance and investments needs change over time, but not always in the same way.

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Tags: Insurance, investment, Life Insurance

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