Should I Invest in a Cash Value Plan as an Investment/Savings Plan?

Absolutely not! Cash value plans such as Whole, Universal, or Variable life insurance should never be used as an investment or savings plan. Life insurance exists to provide financial protection when someone has debts that their current assets can’t cover or when a family would suffer financially from the loss of a wage earner. Outside of that, there are far better ways to grow your money, which is why Dave never recommends using life insurance as an investment—ever.

Whole life policies come with serious downsides, including poor rates of return, high fees, and the fact that the insurance company usually keeps any accumulated cash value when you pass away. Some agents pitch the idea of “tax-free growth,” but in reality, the cash value in a whole life policy is only tax-deferred—just like an IRA. That means you’ll still owe taxes when you withdraw the money. Others claim you can borrow against the policy tax-free, but they conveniently leave out the part where you have to pay interest on your own money. Worse yet, any outstanding loan balance gets deducted from the death benefit, reducing the amount your loved ones receive.

There’s no reason to pay for insurance you don’t need, especially when there are much better investment options. If you have access to an employer-sponsored retirement plan with matching contributions, max that out first. From there, investing in Roth IRAs and other retirement accounts will set you up for long-term financial growth without the costly restrictions of a whole life policy.