(Q & A) Life Insurance As An Investment

Feb 2019


Dear Rick:
My wife and I have now been retired for over five years. When we first retired, we wrote to you about our situation. At the time, you said that since we were accumulating money, it made sense to use the extra money to pay off our mortgage and to do some Roth conversions. We have now paid off our mortgage and converted our entire retirement accounts into Roth IRAs. My wife and I each have a pension and social security. Our pensions are such that they will continue upon either one of our deaths for the other. Therefore, income for the rest of life is not a problem. I have a couple of questions that I hope you can help me with. About ten years ago, my wife and I each bought a term life insurance policy. We each have a half million dollars in coverage and we pay about $10,000 a year in premiums. My question is, should we cancel the policy or do you think it’s a good investment and that we keep it. My second questions deals with the money we are accumulating. My wife and I are also ultra conservative when it comes to investing, and I was thinking of taking the money and every so often buying CDs with it. I really don’t care about the return, I just like knowing the money is there.
What do you think?


Dear Jeff:
I first want to congratulate you and your wife. You two have achieved the American dream in the fact that you are retired and you have the resources to last you the rest of your life. I can assure you that the great majority of Americans would love to be in your position.

In reviewing your life insurance, I would first like to say that I don’t view life insurance or any type of insurance, as an investment. As far as I’m concerned, insurance is a way of handling risk. With life insurance, the question you ask yourself is, if I pass away, does anyone lose out financially. If the answer is no, you do not need life insurance. On the other hand, if the answer is yes, then life insurance is one way of handling the situation. In the situation at hand, from purely a financial standpoint, I would tell you to cancel the policy. After all, why pay for something you do not need. Of course, considering your excellent financial situation, if you decide you do want the policy, not because you think it’s a good investment, but you just want to keep the policy, I don’t have a problem with that.

As long as I have been in the financial world, I have stressed that life insurance is not an investment. After all, I never think it’s a good investment that I have to die in order to collect. The only people who believe life insurance is an investment are the people who are selling it to you.

With regard to the extra cash that you are accumulating, I have no problem with you buying CDs. It’s not that I think CDs are good investments, because I think you can do much better, however, you have put yourself in such good financial shape that return is not the main issue. Thus, if a CD makes you feel comfortable, at this point in your life, why not.

I always believe that investments should bring you comfort, not anxiety. If investing in the stock market is going to cause you mental or physical anguish, it is not the investment for you. Particularly, when you are in such good financial shape and return on your investment is not the key, focusing on comfort makes sense.

In the situation at hand, CDs seem to be the perfect investment. They may not give a high rate of return, but they will provide peace of mind, and that is key at this point in time.
Good luck!


Rick is a fee-only financial advisor.  If you would like Rick to respond to your questions, please email Rick at rick@bloomassetmanagement.com.