Investing on insurance policy is one of the most expensive ways of investment. It involves the cost of the insurance protection itself. It also includes the “surrender charge” that may be levied on the occasion of surrendering the policy within a specified time. The said charge differs with types of policies. At times it even exceeds the total amount of your first-year premium. There are also marketing and sales commissions connected with them.
Above all it involves annual investment fees. It is very difficult to determine how much you’re paying on the policies as the same is not always expressed. In the policies where they are not expressed it may amount to 3% or more. It is common in case of variable life or variable universal life policies. The major part of it consists of the investment management fee. An annual fee is also added to the charges called the” mortality and expense” charge. It gives the insurance company a profit.
The heavy fees often diminish the returns of the policies. People get more frustrated when they realize investment in mutual fund is even better as they have annual expenses amounting to 0.5%- 1%. It is far less than the amount to 3% annual investment fees which the insurance companies take from them.
People who are young and having good source of income can opt for investment on insurance policies. When you know you are not going to have a handsome income after retirement, these investments can be a good option for you but it is not so for everyone. It might help you to get loans in case of any emergency that might arise in future.
There are agents who suggest investing on insurance policies for securing retired life. They will say that these investments are nothing but “forced savings”. But there are other retirement plans which also force you to save when you opt for them. Today cash-value insurance is generally treated as a poor investment. Though they suggest that money invested on insurance policies can grow as tax deferred but it is same in case of many other investments which involve less expenses.
Thus investing on insurance policies which is in itself very expensive is not a good option for investment.