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The Pros and Cons of Using Insurance As an Investment

Throwing money away isn’t very smart, is it? Many financial advisers will go far beyond recommending that you don’t throw away your money, and tell you that it’s just plain stupid. Yet, we do it all the time with our money, from not getting the best deals with our utility providers, spending too much money on rent and even when buying our life insurance policies. Everyone knows that investing in a home is smarter than paying monthly rent that you will likely never see again. The same goes when you purchase a temporary life insurance plan that you pay a premium for every month and might not even use. The smart thing to do to is to invest in a whole or universal life insurance policy, or is it?

When you invest in a whole or universal life insurance policy, you will at least see your premiums again one day. A lot of the premiums we put in each month are set aside to accrue interest and not tax, which can really add up over time, if you invested early. However, many of us don’t invest early – we invest too late, making many of the high premiums, just high premiums and thus a waste of money.

One of the biggest downsides of using insurance as an investment is that it is hard to do an accurate cost benefit analysis. Much of the time, the high premiums are just to expensive, making your overall investment not a smart move in the first place. Many insurance agents will sell you on the fact that these premium insurance policies are a great long term investment, but if you just look at the fine print you will notice that you are paying far too much on the monthly fees.

However, over time, because many of these investments are “tax deferred” – meaning you don’t often have to pay tax on the money with interest that accrues – the tax benefits alone could make your investment worth it. You can also make some of these same tax deferred insurance investments with a smart auto insurance plan or you can to see if you can receive a low monthly premium for a nice temporary auto insurance plan that allows you the freedom of not being tied down.

Another huge downside to using insurance as an investment is that, usually, you are tied down for the long haul. For all the tax benefits it could be worth it, but if you think about the requirements for monthly premiums, you might be better off investing in a 401K or an IRA with higher interest rates so that you can make the most out of your money. In the end, you don’t want to throw away you money, but if you weigh some of the pros and cons you might find some hidden benefits that you hadn’t thought about before, because most of all you want to make your money work the hardest for you and not the other way around.

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