The investment component of life insurance refers to the portion of a life insurance policy that is designed to accumulate cash value over time, which can then be invested to potentially grow the cash value. There are two main types of life insurance with an investment component: whole life insurance and universal life insurance.
Whole life insurance is designed to be a combined insurance and investment product, with a portion of the premium paid into the policy used to purchase a life insurance contract, while the remaining portion is invested to grow the policy’s cash value. The growth of the cash value is generally guaranteed, based on the performance of the insurance company’s investments.
Universal life insurance also has an investment component, but it provides more investment flexibility than whole life insurance. Policyholders can choose how their cash value is invested, typically from a range of investment options, such as stocks, bonds, and mutual funds. The growth of the cash value is tied to the performance of the investment options selected.
It’s important to keep in mind that the investment component of life insurance should not be considered a substitute for a well-diversified investment portfolio, as the primary purpose of life insurance is to provide financial protection for your beneficiaries in the event of your death. The investment component of life insurance can provide additional financial flexibility and the potential for growth, but the returns are not guaranteed and can fluctuate based on the performance of the investments. If you have questions about the investment component of life insurance, it’s a good idea to consult with a financial advisor or insurance agent.