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How is Life Insurance an Investment? A Brief Explainer

Rouselle Isla

Rouselle Isla

Last updated January 03, 2024

You need a robust financial plan to turn your dreams of buying your own house, sending your kids to the best schools, traveling the world, and retiring comfortably into reality. It’s best to incorporate life insurance and investments into this plan. 

Life insurance and investments support different financial goals. But did you know that you can use life insurance as an asset? 

Keep reading to learn the answer to the question: is life insurance an investment?

Insurance vs. Investment

is life insurance an investment - insurance vs investment

If you’re considering investing in insurance, you need to know if a life insurance policy can be considered an asset in the first place. 

You mainly purchase life insurance for risk management, as it provides financial protection throughout the coverage period. In case of your unexpected death, your beneficiaries will receive the cash benefit, which can pay off any debts, provide income, or generate liquidity. They can receive the sum insured as agreed upon between you and the insurance company. 

But note that not all life insurance policies include a cash value. For example, term insurance policies only provide basic but essential life insurance protection for a specified period. When the coverage expires—usually after a year—you’ll need to renew your coverage again. So this type of life insurance coverage is not considered an asset. 

On the other hand, an investment is any item or asset you acquire with other assets, money, time, or effort. The goal is to generate income, increase its value over time, and create future wealth. Investments include real estate property, stocks, and bonds, just to name a few. 

These provide returns on your money or assets based on conditions affecting the investment. Thus, there are no guarantees. It’s possible you won’t generate profits or end up with less money than you had before investing. 

Still, there are things you can do to reduce investment risks, like diversifying your portfolio. 

Related reading: Secure Your Future with the Best Life Insurance in the Philippines

👉 Similarities of Life Insurance and Investments

Life insurance and investments have some things in common, like the following: 

  • Interest - Over the years, interest rates contribute to the growth of life insurance policies with cash value. The same can be said of savings and money market accounts, certificates of deposit, ETFs, bonds, and REITs. 
  • Dividends - Certain life insurance policies and investment options pay dividends after a certain period. 
  • Tax benefits - Because the payout from a life insurance company is not considered income, you can make tax-free withdrawals. Your beneficiaries can also receive the lump sum tax-free. Similarly, you can receive tax-free earnings and income tax credits from investments.

👉 Differences Between Life Insurance and Investments

Although they have a few similarities, ultimately life insurance and investments are two different financial options because of certain terms and conditions:

  • Loans - When you borrow from your life insurance policy, the amount will be deducted from the death benefit.[1] When you borrow against assets and investments, you’re borrowing against the value of your portfolio.[2]
  • Flexibility - You only receive the insurance benefit when an accident, disability, or death occurs. But you can withdraw anytime with investments, depending on your needs or considerations. 

Is Life Insurance an Investment? 

is life insurance an investment

A life insurance policy can help you set money aside for your loved ones’ future. But can life insurance also be used as an investment?

Many life insurance products allow you to put some of your premium payments to a cash value.[3] This cash value grows over time. You can withdraw, borrow, or put it in other investment instruments. 

So yes, life insurance is an investment when it has cash value, an additional living benefit you can withdraw or borrow from. 

❓ How Does Life Insurance Work as an Investment?

Life insurance with an investment component accumulates cash value when you pay more into your policy, with the excess going into its savings or investment portion. 

In the policy's early years, a higher percentage of your premium goes toward the cash value. As the fund value in your insurance policy grows, you can use it in various ways to further build your financial stability, such as savings, emergency funds, and retirement.  

The most common life insurance policies that can build cash value belong to the permanent life insurance category:  

  • Whole life insurance: Typically, premiums for whole life insurance policies don’t change. Death benefit and cash values are also guaranteed at policy issuance. As long as you pay the premiums, you’re set. 
  • Universal life insurance: You can enjoy flexible premiums and make adjustments to your policy to fit your needs right now or in the future. 
  • Variable unit-linked insurance: This permanent life insurance offers life-long protection as long as you pay the premiums. The cash value component also gives you the option to withdraw or borrow from the accumulated cash value. 

A VUL combines life insurance and investment in one. You can thereby achieve your long-term financial goals while knowing that you and your loved ones are financially protected. 

A great example of such a product is Protect Your Goals, offered by Singlife, the first and only purely digital life insurer in the Philippines. Its insurance protection ensures your loved ones will receive benefits worth 125% of the premiums you’ve paid in case something happens to you. 

Compared to other VULs in the market, Protect Your Goals will help you grow your money to ₱1 million the fastest because it invests 100% of your investments into professionally managed funds. Just make sure to save ₱5,700 monthly in Protect Your Goals for 10 years and keep your money invested for another two years.

Protect your loved ones and start growing your money by downloading the Singlife Plan & Protect App. You can also manage, make adjustments, and withdraw from your investments on your own anytime using the app. 

To start your investing journey, make an initial cash-in of at least ₱250 to the app’s Emergency Fund feature. You’ll receive a one-time cash credit of ₱250 for your insurance payments and a 5% tax-free yearly interest on your Emergency Fund. 

Give yourself and your loved ones the gift of financial freedom! Click the banner below to get started.

Download the Singlife Plan & Protect App via Moneymax now

Read more: Take Full Control of Your Financial Future with Moneymax and Singlife Philippines


🎁 Bonus: Get Free Life Insurance from Singlife
singlife feb143 promo
Until February 29, get free life insurance from Singlife! This comes in the form of ₱251 Singlife Credits, covering death and disability worth up to three months of your declared salary.
Here’s how to avail of the promo: 
  1. After downloading the Singlife Plan & Protect App, choose Redeem a Voucher as a cash-in option. 
  2. Enter the code FEB143. Note that you must redeem your free credits within 90 days from receipt of the code. 
  3. Wait for ₱251 to be credited directly to your account. 
Use your free credits to get up to three months’ worth of life insurance or buy other products via the Singlife Plan & Protect App. Make sure to grab yours ASAP—limited vouchers are available daily!

When Should Life Insurance Not Be Used as an Investment?

is life insurance an investment - when should life insurance not be used as an investment

Everyone’s needs and situations are unique, so life insurance may not always be the best investment option. 

For instance, if you already have insurance coverage, consider other investment options with higher returns. These may be better suited for your financial goals.

You may also want to look at other investments if you don’t like the fact that cash values are not typically added to the death benefit. Since cash values are a living benefit, they won’t be passed on to your beneficiaries.[4]

Moreover, the cost and eligibility of life insurance depend on a person’s age and health condition. The older you are, the more expensive the premiums will be and the shorter period your policy will have to accumulate cash value.  

Read more: Should You Get Life Insurance? Consider These 8 Factors

Final Thoughts

Not many people are aware that you can use life insurance as an investment. Aside from the financial protection it provides from life’s uncertainties, it has the potential to grow cash values that you can withdraw or borrow against while you’re still alive. 

Now that you know why life insurance is a good investment, opt for life insurance with an investment plan for maximum benefit. Although not a direct investment product, it’s an essential tool in your portfolio that can help you achieve financial stability. 

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Sources:

Rouselle has over eight years of writing experience in the personal finance niche. She has written feature stories, articles, and how-to guides on various personal finance and trending lifestyle topics. Before that, she briefly worked in banking and was a licensed life insurance advisor. When not writing, Rouselle likes to read books and binge-watch films and series. Follow Rouselle on Linkedin.

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