When it comes to life insurance, you probably don’t think of your policy as an investment so much as insurance for your family in the event that you should die. However, depending on your situation, you may want to start viewing life insurance as an investment and make it a priority in your budget.
What is Life Insurance?
Simply put, life insurance is a type of insurance that pays money to your family in the event of your death. You pay premiums like other types of insurance, and if you never use it, you don’t get anything out of it. Investing your premiums in other ways would likely have better yields, but wouldn’t give you the same peace of mind as a life insurance policy.
When you pay your insurance premiums, the insurance company takes that money and invests it. They make a profit off of that investment, some of which they pay out to policyholders who pass on. If you invested your premiums yourself, you’d reap all of the profit (assuming you invested wisely).
Of course, this is assuming you live a long and full life, never using your life insurance policy. If you die sooner, the insurance policy is the better deal for your family. In fact, the earlier you die, the better your life insurance investment is. Since far fewer people die young than old, life insurance companies are able to make a good deal of money and stay in business.
Why Get Life Insurance?
You may be reading this wondering why you would ever sign up for life insurance, knowing you’re not getting the best deal. The reason is to protect your family if something unexpected happens. If you have a large financial obligation, like a mortgage, a life insurance policy can ensure that your family will be able to stay in their home, even if you’re not around to pay the bills.
Whether or not a life insurance policy is a good investment depends on your particular situation. If your early demise would not be a financial hardship for anyone living, you should invest the money you would spend on a premium elsewhere. If your early demise would be a hardship financially, a life insurance policy and the protection it offers would be a very good investment.
Since nobody can tell you when you will die, you have to make your own judgement on whether or not to invest in life insurance. If you live to a ripe old age, the money may be wasted, but if something should happen to you, your family will have peace of mind knowing that they are at least protected from severe financial hardship in the unfortunate event of your death.