Ever been sold your insurance policy as not just a safety net but a wise financial move, too? It’s a dangerous proposal, I recognize. Imagine the opportunity of having the benefit of protection along with the potential for financial growth. You’ll have a chance to hear directly about what’s new and special this year. Using insurance as an investment can be like walking through a blindfolded minefield! To put it bluntly, I’m a bit of a finance nerd at OverTraders.com. As someone who’s seen firsthand how this irresponsible strategy can lead to some truly vile outcomes, I’m appalled. Here’s a closer look at those assumptions and why treating insurance like an investment isn’t the silver bullet it appears to be. Big things are at stake, so we have to expose the truth behind this strategy.
To begin with, we need to get honest about risk. We don’t mean run-of-the-mill market downturn anxiety. The holistic risk investment stakeholders are waving red flags about credit, currency, equity, interest rate, and liquidity risks currently facing insurers. You take all your hard-earned savings and you put it into an asset that’s supposed to be safe and sound. Next, you find out the foundation is a lot more janky than you thought. It’s sort of like taking a loan to build your dream home on quicksand—an exhilarating prospect at first, horrifying when your foundation begins to fall apart.
I can’t forget the first time someone tried selling me a Variable Universal Life (VUL) policy as an investment. The prospect of tax advantages and returns tied to the performance of the stock market was tempting, but it didn’t sit right. As I started to scratch the surface, I found a world of additional expenses. Along the way, I found quite a few limitations hiding in the weeds.
One of the most notable is taxation, which is one of the biggest problems I find. Unlike other financial products, insurance products such as VUL policies are taxed as ordinary income. In the meantime, our old dependable friend stocks and bonds are happily sitting at the lower rates of capital gains. It’s like opting to be taxed at full rate instead of receiving a 90 percent discount.
The creation of insurance products sometimes seems like being in a small sandbox with only a few toys. With traditional investments, you have an entire amusement park at your disposal. This inflexibility can severely impede your ability to make the most out of your investments.
The second surprising thing I’ve learned is that these policies are extremely expensive. Those high fees will devour your returns quicker than you can mutter “financial freedom.” With the kinds of investments traditional, the fees are about 10 times less, so significantly more of your money is staying in your pocket to compound.
Now this is how you talk performance. Though insurance policies promise returns linked to the market, they’re usually well below what you’d earn in a regular investment account. Fees, restrictions, limitations, and other roadblocks can take a big bite out of your progress. It's like running a race with weights strapped to your ankles – you might finish, but you'll be much slower than everyone else.
Liquidity has proven to be another key ingredient. Or what if you want the option of being able to tap your funds in a pinch? With stocks and bonds, it’s very easy to sell those things on short notice, typically. But an insurance policy? They usually do that with surrender charges and early withdrawal penalties. It’s like trying to escape financial Alcatraz – intimidating and expensive.
I’ve listened to harrowing stories of people blindsided by income limits and enrollment thresholds. These limitations severely reduce their potential upside. These insurance policies may not be adjusted for inflation and thus lose value over time by eating away your purchasing power. When that happens, it’s like watching your hard-earned money melt away before your eyes.
The strictness of these policies is perhaps their greatest weakness. Unless you’re a financial whiz, though, the learning curve can be intimidating. This lack of transparency can result in misguided investment decisions. It’s as if you’re attempting to traverse a maze in the pitch black – you’re sure to take a wrong turn.
Now, I’m not trying to throw insurance completely under the bus here. It is indeed fundamental to defend against unknown unknowns. When it comes to growing your hard-earned wealth, there are much better options. Consider making long-term investments in assets that gain value over time, such as real estate, fine art, or collectibles.
Additionally, stocks have greater potential to power long-term growth. As a result, they frequently provide better returns than more conventional investments such as bonds or savings accounts. Bonds are typically seen as moderate-risk investments, providing a fixed, stable income, and are considered safer than stocks in general. Real estate investment trusts (REITs) make it possible for people to invest in real estate without the need to buy, manage, or sell physical properties. With peer-to-peer lending, you have a new alternative to traditional lending. It allows anyone to become a micro-lender and make loans directly to people, earning interest on their investments.
Yes, some insurance products have tax benefits, but there’s usually a downside to those benefits. Don’t lose sight of the forest for the trees and have the promise of tax savings cloud your judgment.
So, what’s the lesson learned here? So before you hop onto the insurance-as-investment train, resist the impulse and look at the big picture from all sides. We all know that insurance is great for asset protection, but it’s not the most efficient vehicle for building wealth.
Instead, look to alternatives investments that provide increased flexibility, lower costs and a higher return potential. Speak with a financial advisor, educate yourself, and take the appropriate steps to ensure you’re making the best decisions for your financial future. Take it from us—your future self will be very grateful. And like always, continue to trade big with OverTraders.com!
