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Q: Should I Invest in a Cash Value Plan As An Investment/Savings Plan?

2011 October 15

No!  Never! Life Insurance should be used as a protection product when an individual or family has debts that cannot be paid from their current assets and if a wage earner was to die and there is a need to provide an income for those financially reliant upon them. Otherwise he feels there are much smarter things that you could do with your money.  Dave never recommends using a life insurance plan as an investment tool…EVER!  There are so many pitfalls to this approach especially when considering rates of return, fees and the fact that typically the savings in a policy are kept by the company at the time of death.  Also, many agents try to imply tax free growth when in essence there never is.  The growth of cash value held within a whole life type policy is tax deferred similar to an IRA which means taxes are paid at the time the money is withdrawn.  Others try an imply that by borrowing your own money from within the policy will allow tax free withdrawals but omit the fact that you have to pay interest to borrow your own money (which reduces your long term rate of return) and if you die the amount of the loan is reduced from the death benefit.  Additionally, why should you incur the cost of insurance when it is not needed?  Maxing out your employer retirement options, especially if there are matching opportunities and then moving on to Roth IRA’s and other investment options are much more productive investment options.  A link has been provided to our Term vs. Cash Value website to learn more information.

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