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How You Can Use Life Insurance As an Investment Tool

There are literally thousands of investment tools out there, and determining which one is the perfect fit for you is a complicated consideration. The fact is, each investment you consider will have its fair share of pros and cons, and there may not be an absolute ‘perfect’ option. But you can certainly hedge your bets with a diverse portfolio and some options you know will be there in good times and bad. Most people buy life insurance because they want to make sure their families aren’t put in further discomfort if the principle breadwinner were to pass away unexpectedly. It’s a grim proposition, but a wise and prudent move. It’s also a choice that doubles as a money-maker. Here are just a few of the ways you can use life insurance as an investment.

First of all, make sure you understand the differences in available policies. The largest expense comes from a “whole” life plan, which covers you without a gap from the day you sign the paperwork until the day you die. These cost the most to set up and in monthly payments, and are the most limited in how you use them. A better bet as an investment is the “term” life insurance policy. In this case you are buying insurance for a finite amount of time. Your payment remains the same each month, and you know what the final cash value of the plan will be once it matures. If you are still alive when that term comes to pass you must renew your plan or it expires, leaving you with nothing.

The term plan gives you a way to control the investment of money you leave behind for your family. Since you are building up equity towards the total value each time you make a payment, that money is now protected. If you were to go bankrupt or lose your job, you would not lose the equity you’ve built up. Therefore that cash will always remain available for your children and other dependents. If you don’t want to risk losing value and want to avoid paying more than is necessary in estate tax you can take on a larger life insurance policy than you even think you need, and guarantee a large payout for your family.

As you accrue equity in this term insurance plan you can also use it as a borrowing tool to make additional investments. If you want to take out a larger mortgage, purchase a car, launch a business or buy a share in the company, you can approach a bank with your life insurance policy as collateral. That makes it an incredibly flexible investment tool, that in many instances is actually stronger than cash. To some lending institutions it will prove you are the sort of person who plans for the long term and thinks conservatively. That makes you a better bet for them, which should pay you back through larger lines of credit and lower interest rates.

All of the above is fantastic, as long as you purchase the correct insurance product. Make sure you always read the prospectus that comes along with the policy before signing anything. It should read in plan english, much like the details you came across on when searching for your car policy. But if there’s anything you don’t understand, run it by your financial planner or attorney. You don’t want to end up putting your money in something that doesn’t operate the way you need it to.


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