The choice of investment vehicle is purpose driven. Yes, life insurance, whether term or permanent is an investment in the sense that you are investing your hard earned money with company with a promise in return.
Term products protect the financial holes left by the departed within that term. For example, if little Johny is going to college in 7 years, and your current plans are to pay as your earn for college, then obtaining coverage for a term of 10 years (life insurance policies usually are available in 5 year increments starting at 10 and ending at 30) will cover the hole should you expire before your plan has been fully realized.
Term products protect a financially impaired widow from foreclosure. Say you have 15 years left to pay on your mortgage and your plan is to pay it off in 15 years per the payment schedule, obtaining a term contract for fifteen years makes sense. The only decision left is to decide the amount of the policy. The most common option is to choose the amount remaining to pay on the mortgage or more. The second less known option is to choose the face amount on the life insurance to be equal to the investment needed assuming a conservative interest to payout over the life of the mortgage as originally planed. The second option affords a few additional tax benefits. The drawback of the second option is if the investment you chose performs worse than your assumptions, the widow could potentially run out of money before the mortgage is fully paid. Thus, a very conservative assumed interest rate must be used. The ideal choices of investments are long term in nature and guaranteed or insured contracts such as long-term brokered Cd’s, municipal bonds, annuities, etc…
Permanent protection afforded by whole life and universal life contract on the other hand have several uses. It is still life insurance but with some additional tax advantages including tax-deferred growth of the money not used to pay the cost of the insurance. One has to understand also that the “cost” of any life insurance continues to increase yearly as your chance of dying increases with every year that passes. What permanent coverage has done is to “level” the premium to the consumer to make it more predictable and appealing to the masses. The cost however continues to increase which can be observed when looking at the premiums of two identical people with identical medical histories, dying of the same cause at the same age, obtain identical policies, however the purchase is made at different ages. The younger one typically pays lower and less overall premiums than the older person.
Also, life insurance contracts are private in nature. The relationship exists between you and the insurance company and interested parties. No one else has access to the information without your permission. This is one of the reasons why permanent insurance has been used successfully to save for college for years and many more years to come. Saving for college is a whole other series of articles.
Whichever vehicle you choose, the purpose for the protection needs to be agreed on, the length of time needs to be agreed on, and the amount of protection needed is also necessary to be agreed on before choosing which vehicle will best suit the need.
Suppose for example, you want to pass on assets to the next generation. Should you pay the taxes now as the investment grows and leave the assets in an interest bearing account without tax shelter, or, should you purchase a life insurance policy equal to the amount you want to pass on. The life insurance is the better choice because the death benefit is tax free. However, there can be other factors affecting the decision which may alter the previous statement.
One of the best thing to do when it comes to choosing a life insurance company and contract is to speak with a seasoned insurance broker preferably with ten years or more in the industry. A seasoned broker typically will have unbiased recommendations as it will be driven by your needs.