Permanent Life Insurance
Poor returns on your savings
Depending on the type of life insurance you buy, there are many investment options available. In many cases, if you compare the investment options within the life insurance policies to the comparable investment options available if you invested your money separately, the insurance investments usually do not perform nearly as well.
You are better off keeping your savings and investments separate from your life insurance.
Possible loss of your savings or insurance
Again, depending on the type of permanent life insurance you buy, different rules could apply. Quite often when you pass away, any savings you had in your life insurance policy are lost. The savings you have accumulated are not always paid out to your beneficiary.
The insurance company often keeps that money for themselves.
On the other hand, whatever savings you take from your policy will often reduce your coverage by that amount.
If you have permanent life insurance now, you can check what your policy offers by looking for the death benefit amount showing in your policy. It’s usually noted on the first two to three pages. Or you could call your insurance agent or company and ask them directly. See if you get a straight answer from them.
You may have to borrow your own money
This is another concern with the savings portion of permanent life insurance. With many policies, if you would like to use some of your savings for something like a home improvement project, you may have to borrow your own money and pay interest on it until you pay it back in full.
To help illustrate this, imagine having a savings account at the bank that you have been putting money into faithfully for many years. One day, you decide to use some of that money to pay for home renovations. You go to the bank and fill out the withdrawal slip. When you give it to the teller, they say that they would be happy to give you your own money, but you’ll be charged 8% interest on it until you pay it back in full. It sounds crazy, but many permanent life insurance policies work this way.
