Would life insurance be a good long term investment for a 19 year old?

Question

I am thinking about purchasing life insurance as a long term investment and as a potential way to borrow money off the policy in the next 10-15 years.

Answer 1

Hi, your friendly insurance guy here again.

A few quick points:
1. Life insurance is not an investment. While some life insurance contracts include features like separate accounts with funds in the market, the insurance itself is not an investment and it's against regulations to present it as such.

2. The only typically used insurance contracts that have separate accounts in the market are Variable Life or Variable Universal Life contracts. Since the death benefit (the amount paid out to your beneficiary upon your death) changes with the performance of the funds in the separate accounts, it's generally a poor choice. Reason: the primary function of life insurance is to push risk away from the insured, meaning you. The risk life insurance pushes away is the risk of financial trouble for your survivors when you die (not if, WHEN). Having the death benefit fluctuate with the market pulls risk right back in your direction.

3. If you want to use an insurance product, Whole Life insurance is the way to go. You are young, and, if you are healthy, the premiums will be as low now as you will ever have them. It will allow you to secure your insurability and make sure that no matter how old you get, your surviving family will get something. If you choose this option, go with a Mutual company. Stock companies owe their dividends to stock holders first of all. Mutual companies are owned by the Whole Life policy holders, and those policy holders get the dividends. That means that, while no company can guarantee dividends, since dividends drive cash value growth in Whole Life you'll tend to get the best bang for your buck in a mutual company. Three of the strongest mutual companies are:

Massachusetts Mutual Life Insurance Company
New York Life
Northwestern Mutual Life

All of them have scores of 99 or higher out of 100 on the Comdex rating system (which means they are financially stable, strong companies.). Last I knew, MassMutual had not missed a dividend payment since 1851 (155 years.) I think New York Life has a similar record. I don't know for sure about Northwestern Mutual.

All that said, while I believe it is a great idea for you to buy whole life while you are young, if your goal is to have an investment other options should be considered as well. Money Market accounts, ten year government bonds and other such options can proovide safe ways to sock away some cash. Higher yields will tend to require you put your money in higher risk vehicles, like mutual funds or high yield corporate bonds. Your time horizon is long enough that a market investment may be a viable option. Consult someone local, in person, and do a thorough needs analysis and risk tolerance assessment and learn from what that person does. It will help you understand the process.

Choose someone who is not beholden to selling a particular company's products so the input will be as objective as possible.

Do some reading. I know it sounds campy, but the Investing for Dummies book is actually not bad.

Answer 2

I'd say it's a great idea. You're 19, in good health. A whole life policy is for you. The premiums are dirt cheap because of your age and they will stay the same no matter how old you get as long as you keep the policy. The money you set aside in them will earn interest (better than what you'd get at a bank), and here's the sweet part: unlike a bank, the interest you earn in your policy is tax free. Another sweet part: The money you store up in your life policy cannot be touched by creditors, or the IRS. Why? Because insurance companies are not regulated by the federal government like banks are. They are regulated by the states. Therefore, they do not have to report to the federal government like a bank does, which means the gov has no way of knowing about the money you have in your policy. This is a little known fact that most people don't know about.

You should consider other investment vehicles too, but your life policy would probaby be a very good base for you that you can keep as long as you want. At your age, the money will grow big time in the coming decades if you don't touch it and let it grow. Plus there's a death benefit in case something would happen to you.

Answer 3

In a word - NO.


As a long term investment, I would (if I were 19 again) try to think of the possible uses for the money and assign a priority to the use.

For example. Suppose I was 19 and had $10,000 just burning a hole in my pocket. I have some choices.

These choices could be:
1. Buy a whole life policy.
2. Pay for college, or part of college.
3. Pay for, or enroll in a trade or trade school.
4. Open a ROTH IRA.
5. Start a business.
6. Invest in something, other than for retirement. mutual funds are one example. carefully selecting stocks is another.


hope this helps.

Answer 4

You're right to be skeptical. And NO, it's typically not a good retirement plan. Keep your life insurance and retirement needs separate. Life insurance is designed to provide for a lump sum to your family/beneficiaries; when there is an economic loss or need as a result of your premature and untimely death. Term insurance is cost-effective, and can provide for this need, when the time comes. One could argue some permanent insurance, like whole life or universal, could be prudent, to pay for a final illness and burial needs. Retirement options abound! A 401k, for example, can provide three potential benefits: (1) it's automatic, so the money gets put away whether you remember to fund it, or not; (2) you get a tax deduction, reducing your tax bill, and (3) there will likely be a company "match," providing you with more dollars towards retirement. In my 25-plus years in the biz, I've never seen a VUL policy work out like the original illustration. Ask the agent to run it based on the last 10 years, at 0%, instead of the hypothetical rate he or she chose, and you'll see how horrible the results are. The expenses are just too high. Hope that helps. PLEASE VOTE to avoid a TIE. On behalf of all of your responders, who take the time and effort to help questioners in this free Yahoo! community, THANK YOU in advance for taking the time to choose your "Best" Answer. We really appreciate it. DISCLAIMER: While the information in this response was obtained from sources believed to be reliable, its accuracy and completeness cannot be guaranteed. The opinion voiced in this answer is for general information only and it shall not be construed as tax, legal, or investment advice for any individual. Questioners are urged to consult with their professional advisers before making any decisions regarding their finances. RetirementGuru, CFP®, EA, BCE, AAMS Certified Financial Planner™ Practitioner Enrolled Agent | Admitted to Practice before the IRS 'Providing sound Retirement and Estate Planning Strategies since 1985'

Answer 5

GREAT IDEA ... But ONLY if you are planning to die soon. Otherwise, take your money and invest in mutual funds, real estate or just a savings account or invest the money into your education which is where you get a real payout.

Life insurance for a single person without assets is totally unnecessary. Why would you consider borrowing insurance money that's YOUR money??? Skip the thought of insurance as in investment. It's only going to pay off when you die and you won't be around to enjoy the money.

Answer 6

Yes. The coverage can be high at a manageble premium. Depending on your premium, the higher it is the sooner your breakeven point will be. On the average, most of us start breaking even at the 19th year and that's when you can consider to continue or cash out. You may also make partial withdrawals however subject to interest and penalty, depends on the terms and condition of the policy purchased.

Be noted that the returns will not be really high as the objective of the policy is very much placed on protection. Unless you decide to invest high on premium and wait for 25 years later from inception of the policy... There should be a good sum for vacation during retirement.

Answer 7

Policies that I'm familiar with don't offer that much in the way of taking a loan from it. And they get about as much interest as a savings account!
It's mostly that if you take out life insurance now (Not Term Life) you won't have to pay through the nose when you want to buy it at an older age. I just don't see it as an "investment"..

Answer 8

I have a VUL (Variable Universal Life) currently, which is part investment and part protection. There are nother whole life variants as well such as UL. If you are just using this as an investment you have alot of other choices such as IRA (Roth or Traditional), 401K, Mutual Funds, Stocks etc.

The VUL invest in funds and depending on the VUL, each have different funds. Now the expenses are more than the normal mutual fund but at the same time after awhile you can borrow a loan from yourself in the VUL without penalties. This is also a good safe haven for such things as if you have kids in the future and want to apply for financial aid, the life insurance won't show up as part of your income/investments. It's best to overfund a VUL to get the maximum effect.

It really depends on the situation of each individual.

Answer 9

Now necessarily Insurance - but Assurance which is slightly different. An Insurance policy is usually only payable upon death of the insured person. An Assurance policy includes death but after a fixed period, say twenty, thirty or so years, a payment is made which includes bonus's. It is usually worked in a Bonds scheme which depends on the Stock Market. There is a catch in that if you cancel the policy in the first few years, you get nothing back...........

Answer 10

HECK YA!!!! Funerals are very expensive! I have a simple 25,000 policy to cover my little bills and my funeral. You can adjust it later in life to cover your house and your family. You dont know when you are gonna die. Don't leave the bills with your family. Besides, if you get a will and say how it will be spent you can make sure if you die young your friends can have an awesome kegger.