Insurance Products are not Good Investments
May 20, 2014
Insurance products, such as annuities, and whole life and universal life products, generate very high commissions for insurance agents .
You need to question the guarantees of these insurance products, and read the fine print. Usually the guarantees are not on an annual basis, but for the 7-10 years.
For example, insurance companies or agents may say “We will give you a guarantee of 5%.” What that really means is you will get at least a $5 return for every $100 after 7 – 10 years, and not $5 every year.
Insurance should be used for insurance purposes only. Your purpose should be to transfer the risk of loss to the insurance company. Term life, health, auto, home, and long term care are good types of insurance.
Do not use insurance products for investing or generating income. Your returns are reduced by the insurance company’s fees, and the insurance agent’s commission.
Why don’t you invest in a low cost diversified index fund instead? In fact, you can also buy the exact same funds that the insurance product offers, and pay less fees.
Please note that a blog post can not address each and every possible option that an insurance product pitches to you, but if you contact a competent and trustworthy financial advisor, they can give you an alternative that achieves the same objective with less fees and one where there are no caps to your returns.