Life insurance is not primarily an investment tool although most policies carry an investment component. Although more and more financial consultants are including it in the overall financial planning for their clients, you should alway look for other primary investment vehicles. The investment component of life insurance policies is usually related to mutual funds. Every person aims to maximize protection at no cost and maximize wealth at no risk.

Investment opportunities in Whole Life Insurance are dependent on the surplus of the cash reserve which grows overtime. The cash reserve earns dividends paid by the insurance company. Cash values can be borrowed after some time or the policy can be cancelled to receive its cash surrender value.

A cash reserve can also be built with Universal Life. It traditionally provides more consumer information on such things as company overhead expenses, reserves, cost of insurance and how much goes towards savings. Term Life Insurance is what is considered pure insurance in the sense that it offers life insurance coverage and nothing else.

Variable Universal Life Insurance combines the premium payment and coverage flexibility of Universal Life Insurance with the investment opportunity of securities, stocks and bonds via mutual funds. The combination of insurance features with mutual funds results to a cash value that is reflective of the stock market environment and the choices that are made regarding the fund allocation.

It has been observed by industry analysts that although there are some favorable long-term drivers for the life insurance stocks, life insurers tend to be the last when financial stocks make their move. A big drag on earning at life insurance has been the losses and write-downs they had taken on bad investments in bonds and stocks of companies. Revenue growth at life insurers is also hampered by slow sales of variable annuities which is a specialized investment vehicle that makes installment payments and is a staple product of the insurance industry. Life insurers cannot count on its ability to generate more revenue through passing on higher premiums to customers since there is too much competition in the life insurance business to permit such escalation. It is still hard to see what could cause life insurance stocks to rise.

The economics of life insurance is such that it is a tax-favored product. The cash values grow tax-deferred and the death benefit is paid to the beneficiary free of income tax. In the case of life insurance being used as a wealth replacement tool wherein donors make a significant charitable gift or bequest, charity can only benefit if the insured dies early. Tax advantages are irrelevant since it is already exempt from taxes. It entails a fairly large cost to have a tax-deferred wrapper on the underlying investment. A well diversified and carefully managed stock or mutual fund portfolio will almost always outperform an insurance policy if the insured lives beyond statistical mortality.

People should strive to become an educated investor. Smarter decisions about money can be arrived at by becoming a better-informed consumer. Life insurance is a protection from future eventualities that could affect our loved ones and the cash value involved is not as lucrative as other investments. Investments should consist of diversified assets spread in stocks, bonds, cash and real assets.

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