Cash value insurance may not be the best option

Jun 21, 2011

Investors should be leery of cash value insurance

Whole life insurance policies can be broken down into two separate parts, the cash value and the insurance, according to FOX News. Some experts feel that these policies are not a good investment for consumers because the returns may not be as high as projected.

If a person has $100 a month to spend on a whole life insurance policy, he could probably find a
policy worth $125,000, according to money-management expert Dave Ramsey. For the first three years $93 of that $100 a month will go towards commissions and expenses.

Following that introductory period, the investment return will average 2.6 percent per year for whole life, 4.2 percent for universal, and 7.4 percent for variable life insurance, according to Kiplinger.

In contrast, a person could purchase a 20-year term life insurance policy worth $125,000 in coverage, for $7 a month. That would allow the individual to take the $93 that is leftover, and invest it into another fund that will start bringing in returns immediately, according to Ramsey. Even if a person put the money in a sock drawer, they would have $3,000 after three years, compared to nothing.  

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