Choosing Life Insurance Plans Instead of Government Bonds

Photo courtesy of www.redeemingriches.com

There are two ways of looking at a life insurance policy. You can look at it as something that creates large fees for the insurer, while a giving the buyer diminishing benefits, or you can look at it as a way of leaving your beneficiaries with money that is tax-free. You can also see it as assurance that money will be available to you and your family in case rainy days come.

Nowadays, a number of financial advisers have started encouraging their clients to buy permanent life insurance as a type of investment, rather than government bonds (which have low interest). Financial advisers have a three-fold argument to this option: first, a permanent life insurance has an ROR (rate of return) of either 3-5 percent; second, the money gained through the policy will be handed down to the beneficiaries tax-free; and third, the policyholders can lend money against the insurance policy without incurring any taxes. If the loan is not repaid, then it will simply be deducted from the policy’s death benefit.

This does not mean that life insurance policies do not have flaws. There are still layers of payments in an insurance policy. Financial advisers will also point out that a life insurance policy will limit the benefits that a person gets on the money that has been invested, and these gains will also decrease the longer the policyholder lives.

With the stock market’s volatility however, coupled with the US Treasury bonds’ low yields recently, there is already an increasing interest in life insurance policies simply because of their steady returns (despite the returns being low).