Life insurance is a way to plan for your future, but it's also an investment opportunity.

That's right, life insurance can help your family financially in the event of your passing, but it can also provide a return on investment by giving you the opportunity to pay premiums on a policy and then collect those payments at a later date.

How does Life Insurance Work as an Investment?

Life insurance is a contract between you and the insurance company. In exchange for a monthly or annual premium, the policy covers funeral costs and other expenses related to your death. Your beneficiaries will receive a set amount of money if you die within that time period.

You pay into it every month (or yearly). In order to purchase life insurance, you need to meet specific criteria and pass medical tests in order for an insurer to decide how much money it’s willing to pay out after your death. The higher your risk level -- based on things like age and health issues -- the more expensive it will be for an insurer to cover you with life insurance. Thus, the higher premium payments will be as well!

Types of Life Insurance Policies You Can Use as an Investment

Life insurance is designed to provide financial security to your family. However, you can use life insurance to invest as well. Here's how it works:

Whole Life Insurance:

With a whole-life policy, you pay an annual premium and also agree to make additional payments if necessary. Your death benefit is equal to the number of premiums paid minus any outstanding balances on loans or other debts owed by you or your beneficiaries until that time. The principal value of whole-life policies increases over time due to paying compound interest on accumulated cash values in the policy.

Universal Life Insurance:

This type offers flexibility since there's no fixed investment component like traditional permanent life insurance but features more flexible payment options than term products do—unlike whole life premiums which must be paid annually throughout the duration of coverage unless otherwise specified upon issuance, universal policies allow periodic payments that may vary in frequency based upon factors such as age at issue date/retirement date/expiration date, etc.

Indexed Universal Life Insurance:

Indexed universal life insurance is a form of permanent life insurance that provides a guaranteed rate of return on the amount invested. This type of policy offers investors the ability to build up their cash value and earn interest on it, even if they don’t make any premium payments. The indexing feature allows policyholders to benefit from market gains without having to worry about market drops—the insured amount remains unchanged throughout the duration of coverage regardless of how well or poorly the stock market performs.

Choose the Right Policy

When choosing a life insurance policy, you should consider the following:

The right policy for your needs. It's important to choose a policy that matches your needs. If you want to invest in stocks and bonds, for example, then look for an investment-related product. If you want to use life insurance as an estate-planning tool or estate tax planning tool, then focus on those types of policies instead.

A good return on investment (ROI). This can help fund some of your financial goals and dreams -- but it's also important that investors consider whether or not a certain type of product has a healthy ROI before buying into it themselves. The Medicare options that are available to you will depend on your age, health, and the type of policy that you have.

Choose a Beneficiary

When choosing a beneficiary, it's important to ensure that the person you choose will use the money wisely and make good decisions. You should choose someone who has a strong relationship with you and is familiar with how you think and what matters to you, so they can make decisions that align with your vision for your money’s future.

You should also ensure that the beneficiary is not a minor: because of their immaturity and inexperience in managing large sums of money, minors may lack the maturity necessary for wise decision-making about investing life insurance proceeds. Even if the beneficiary does have an established relationship with you -- and even if he or she agrees to take control of the funds -- there's no guarantee that he or she will invest them as planned.

Get Your Return On Investment

Understand the return on your investment. The first step in life insurance investing is to understand what you stand to get from your investment (or at least, what it could be). In general, long-term investments in life insurance policies should provide a higher return on investment than other types of investments such as stocks or bonds.

When planning for retirement, consider diversifying your portfolio with different types of assets like stocks bonds, and real estate so that if one category starts performing poorly another may compensate for it (and vice versa). This is called asset allocation—a way of dividing assets among various investments based on risk tolerance and liquidity preference (how quickly an investor wants access to their money).

There are also ways within these categories that investors can diversify further: For example, they might choose mutual funds instead of individual stocks; bonds issued by companies with different credit ratings; etcetera.

Save Money with a Policy Loan

You can borrow money against your policy. A policy loan is a great way to use your life insurance savings as a source of cash for investments or expenses that may not qualify for conventional financing. There are many possible uses for a policy loan. You can use this feature to:

  • Pay off debt and consolidate credit cards
  • Finance the start-up of a business or purchase land needed for the business' growth

Pay off your mortgage early If you need money, but don't want to take a loan from a bank or other lender, a policy loan may be the answer. It's quick and easy to apply for a policy loan. Just complete an application form and send it in with any required documentation.

Avoid Pitfalls

Make sure you don't use life insurance as a way to get out of debt. Life insurance is an investment, not a bailout for your credit card bills.

Avoid using life insurance as a way to get loans and lines of credit. If you need money, it's probably best to just save up or borrow from friends or family instead of taking out a loan or tapping into the cash value in your policy.

Don't use life insurance as college savings plan (unless you have enough coverage). Your child's education should be funded through their own savings account and/or scholarships, not by tapping into the cash value in their parents' policy.

And finally: don't use life insurance as a tool for paying off mortgage debt because this could leave your heirs with nothing but debt upon your passing!

Life Insurance can be a Smart Investment Tool

Life insurance can be a smart investment tool as well as provide security for your family. If you have a life insurance policy and want to use it in the same way, you need to make sure that the premiums are affordable and that there is no cash value (the amount of money left over after premium payments) in the policy.

If they are affordable and there is no cash value, then you should be able to use this money in any way you choose. Many people who have life insurance choose not to take out loans against their policies because they want their families protected from financial hardship down the road if something were ever to happen to them.


Life insurance is a smart way to invest, but it’s important to choose the right policy and get the most out of it. There are lots of things to consider when buying life insurance, but if you follow our tips above, you can make sure your money is put to good use. We hope that this article has helped you understand the benefits of life insurance. It’s an important tool that can help you plan for your future, manage your expenses and even save money while doing so. Plus, if something happens to you, your family will have a way to pay off their debts and make sure they don’t end up underwater in their house payments.