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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/or if a wage earner’s death would financially impact their family. Otherwise, Dave feels there are much smarter things that you could do with your money, and 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within a whole life type policy is tax deferred similar to an IRA, which means taxes are paid at the time the money is withdrawn.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 to imply that 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 IRAs and other investment options is a much more productive investment strategy.

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