I’m still seeing way too much life insurance being purchased for investment purposes. I think this is a huge waste of money, and the only way that it’s going to stop is if the public stops buying it.
If you need insurance, buy insurance. How much depends on what risk you’re trying to cover. How long you need it depends on what you’re insuring. If it’s a mortgage, that’s easy to calculate. If it’s your income or your estate, that may be harder to quantify, but in any case only buy what you need.
When you invest in a life insurance policy, you’re paying a cost for insurance each year, as well as all the related costs of that policy. Let me give you an example:
Let’s say you invest in a Whole Life insurance policy with a premium of $10,000 per year. How much do you think your insurance agent gets paid to sell that policy? Depending on the contract and the company, maybe $16,000. That’s right. Your eyes don’t deceive you. That’s how much your agent can make by getting you to sign a few papers. Now imagine if the premium was $100,000 per year? Simple, add a zero to the commission. Winner!
There’s a lot at stake when it comes to investing in life insurance, but unfortunately it’s usually not the buyer that wins.