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Many people believe that cash value life insurance is a bad investment. Oftentimes this position is held almost as a matter of faith – with no definition of “bad” and no analysis supporting the proposition.  When there is an analysis proffered, it oftentimes consists of a buy term and invest the difference analysis.  Oftentimes this analysis can be misleading.

To me, what is good or bad depends upon the alternatives available.  For example, Is term insurance good because it has a low premium?  Or are there more factors to be considered?    

I don’t think term life insurance is an investment at all because there is no buildup in value.  In fact, while cash outlays are low, if the insured does not die during the term of the insurance, the rate of return on the premiums paid is a whopping negative 100%.

The balance of this article pertains only to traditional cash value whole life insurance – what I will refer to as permanent life insurance.  Permanent life insurance is designed to stay in force for life.  It has two parts – a cash or investment component and a death benefit component. The sum of these two parts equals the policy.  

Permanent life insurance policy values are oftentimes guaranteed as long as premiums are paid.  Moreover, if structured properly, the policy will stay in force for life and ultimately an income tax free death benefit will be paid to beneficiaries. Some life insurance companies allow the use of the death benefit while alive to satisfy long term health care needs.

But is permanent life insurance a good investment?  It depends.  From a rate of return standpoint, almost any permanent life insurance policy will result in a higher rate of return than would a term insurance policy unless the insured died during the term of the policy.  If the insured lives to life expectancy, the rate of return on the permanent life insurance policy will be higher than the term policy.

Moreover, permanent life insurance cash values are guaranteed to only increase.  Annual increases are not subject to income tax or alternative minimum tax.  Lifetime distributions, structured properly, can be income tax free.  Moreover, having a lifetime death benefit in place may allow for rapid spend-down of investment assets during retirement years, because investment accounts need not last for the lifetimes of both the husband and wife.  The life insurance death benefit is available to replenish investment assets that have been spent more rapidly than would have been possible without the life insurance.

In retirement years, cash on cash tax free rates of return on the investment portion of the  policy can exceed 5% per year – higher than the current yields on municipal bonds.  Plus there’s the death benefit.  

I consider traditional whole life insurance to be a part of a person’s bond allocation.  Unlike bonds, which can go down in value when interest rates rise, the cash value of permanent  life insurance will only increase. Traditional whole life insurance can also play an important role in college funding planning and retirement planning.

See your financial advisor for details!

Christopher J. Maurer, J.D., CFP® is a CERTIFIED FINANCIAL PLANNER™ in Bellaire, with over 20 years of experience. He can be reached at 713-667-4884 or This email address is being protected from spambots. You need JavaScript enabled to view it. . This material is intended for educational purposes only.  Please consult your investment professional or tax advisor for specific information pertaining to your situation.  All information contained herein is derived from sources deemed to be reliable but cannot be guaranteed.  Securities and advisory services offered through SagePoint Financial, Inc., member FINRA/SIPC. Insurance services offered through Park Place Financial, which is not affiliated with SagePoint Financial or registered as a broker-dealer or investment advisor. SagePoint Financial, Inc. does not offer tax or legal advice. Legal advice provided by Christopher J. Maurer. 6750 West Loop S, Suite 920, Bellaire, Texas 77401 (713) 667-4884.