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As i am 24 now i get lot of calls from lot of insurance companies asking to take up an insurance policy.... So i decided to get answers for some of my questions in basicallymoney...

  • Why should i invest my money in insurance?

  • What age would be appropriate for investing money in insurance?

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What kind of insurance are you referring to? Please specify if it's life insurance or some other kind of insurance. –  Chris W. Rea Mar 11 '10 at 12:42
    
It appears based on your choice of the word "invest" that others have inferred you're talking about a whole or universal life insurance policy, i.e. the kind of policy that lets you build up an investment component. I've retagged as such, but if that's not correct, let us know :-) –  Chris W. Rea Mar 13 '10 at 14:11
    
Community wiki seems to have thrown this one up for some reason. It is likely that the OP is in India where there seems to be something in the tax code that makes whole-life life insurance a more attractive proposition than it is in most other countries (or maybe it is just that there are more persuasive salesmen or more incredulous customers). See for example this more recent question by Natwar Lath. –  Dilip Sarwate Jun 28 '12 at 20:15

5 Answers 5

up vote 18 down vote accepted

John's answer is similar to what I was thinking. You should invest in insurance "because there's an insurance salesman who needs to pay to send his kid to college."

I will never be a fan of any type of permanent insurance, and I think it wrong to sell a single person with no dependents such a policy. I've used the expression "Variable Annuities are sold, not bought." I feel the same about these insurance policies.

The best advice I can offer in a short reply is this: If you need life insurance, buy term. Save as much as you can, 10% minimum, more if you are able. A young person should be saving for retirement and to position them self to buy their first house, if that's what they wish. What good is a full up Whole Life policy when you need to raise $40K to put down on a house? Sorry to sound like I'm lecturing, this is one of my hot points.

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+1 for term insurance. I agree that bundling insurance + savings together is too costly. Savings/investments should be maintained separately, at lower cost. –  Chris W. Rea Mar 13 '10 at 14:13
    
Perm insurance does accumulate value though.. and you can retrieve the value after the surrender period has past if you terminate the policy. That sounds good from my perspective, but perhaps the value doesn't accumulate fast enough to be worth it. Hmm. –  user606723 Aug 17 '11 at 20:41
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My general rule of thumb is if they are contacting you then it's usually going to end up to their benefit. If you have to seek out and go to them for the financial product, then its more likely to end up a legitimate benefit to you. So if you decide yes you do need insurance, toss that guy's business card, educate yourself, and shop around for the best option for you. –  Bryce Jun 28 '12 at 8:56
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@Bryce Well, no company is going to offer a product on which they consistently lose money -- whether they're sending out salesman or they're waiting for customers to come to them. Of course some people are selling products that are complete rip-offs, and I'm reluctant to buy from hard-sell salesman because if they're demanding I make a decision before I've had time to think about it, that's a good sign that they know that I wouldn't buy if I did think about it. –  Jay May 20 at 21:16

I can tell you the reason the people who are calling you think you ought to use life insurance as an investment.

What they will tell you: It is a way to avoid taxes.
What they are thinking: It is a way for me to sell an investment with a huge commission.

Whole life insurance as an investment really doesn't make sense for all but a very small minority of investors. If you have people that depend on your income to survive, buy term life insurance. It is much more practical and affordable.

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Could you expand upon this? I have heard it many time, but my wife is studying for a license in insurance. According to what she read the flexibility of whole life make it the better product. –  MrChrister Mar 11 '10 at 16:41
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@MrChrister: whole life is more complex, therefore harder to price appropriately. Term life is a fairly simple exchange Whole life is more like a mutual fund. While there might be an investment payoff (if you don't die), it is uncertain, and you are paying a high fee (MER to keep the analogy) in the meantime. –  sdg Mar 11 '10 at 19:13
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You probably have access to a vehicle such as a 401(k) which will make a more effective tax shelter. –  fennec Mar 11 '10 at 20:19
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+1 for term insurance. –  Chris W. Rea Mar 13 '10 at 14:13

Who depends on you?

I personally wasn't insured until I had a family. Of course I had the required insurance policies like auto, but no health until I was 29 and had a kid who needed me. Now I have health, dental, vision, life, auto, homeowners and renter's insurance.

I can't let an accident or disaster affect my baby's future.

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Up-voted as this is mostly how I feel. Before I was married, my standard work-benefit of 1-times salary would have paid for my parents to bury me. Now I have kids, I have much larger term insurance to cover my earnings should I die. My wife is covered also, given that if she were to die (she is at home with kids now), I would need care-givers, etc. –  sdg Mar 11 '10 at 19:15
    
Oh, but do have health insurance. Make it a high-deductible (catastrophic) health insurance plan, if necessary, but have some, even if you're a twenty-something healthy nonsmoking male (in which case it'll even be relatively cheap). Don't make me bring up horror stories. –  fennec Mar 11 '10 at 20:16
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... or move to a country that has a sensible attitude to health care –  Rich Seller Mar 11 '10 at 20:34
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.... maybe, but that has a significant impact on your life and career, and is not always trivial to pull off. I mean, it's certainly one way to do it, but the way you put it so glibly makes it seem more like a political pot-shot than actual advice... –  fennec Mar 15 '10 at 22:04
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... or vote for someone that wants to improve health care where you live. –  GUI Junkie Nov 3 '10 at 8:16

Insurance isn't an investment. It's a hedge against your untimely death, and is meant to replace the potential income that will be lost by not having you there to provide for your family.

Buy term, and invest the difference. Traditional investments will outperform the insurance fund, as well as offering more flexibility.

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As a 24 year old, single,your needs for insurance are minimal.

Why you might consider it are for these reasons. You are young, so it will be cheaper than buying say at 34. Insurance is always on sale.

Two, there is no guarantee that your health will always be good, you may have to pay additional premiums later or even be refused coverage. Ask me, I pay 70% more than others my age for the same coverage.

Three, insurance ownership with equity values can grow tax free as you accumulate the monies. Consider it like a bond portfolio offering guaranteed returns on portions of the growth, and a long term return of 5.5% or slighly more.

Four, stating sooner versus later means more cash buildup. Just like being in a pension will generate more cash for you by age 65, than if you had started at age 34.

Insurance is only one tool in getting a good start. It is not a panacea.

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