Why Is Life Insurance Safer than Stock Market or Mutual Funds?

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  • Post last modified:November 7, 2018

Deciding on which investment tool to use between Life Insurance, Stock market, and mutual funds are one of the most difficult decisions an investor must make.

Life insurance is a signed agreement between an insurer and a policyholder which makes sure that an insurer pay’s an agreed policy cash value to the listed beneficiaries upon the death of the policyholder.

The stock market is a center where trading on shares of various listed companies takes place, while mutual funds refer to a tool of investment created by a pool of capital that is collected from different investors with the aim of investing in various securities, example bonds, and stocks.

Each of the above has its benefits over the others, and in this article, we shall discuss why life insurance is considered safer than the stock market and mutual funds.

The Policy Holder Accesses a Tax-Free Growth

A good tax planning should reduce one’s taxes when he or she is still alive and at the same time when he is dead.

In life insurance, one can transfer estate tax and income tax-free to his or her beneficiaries as well as help in building one’s tax-deferred growth on the policy invested cash which is not at the risk of desires of those who manage Medicare and Social Security.

One can access these benefits by putting this money in any of his or her retirement accounts and use it to supplement his or her retirement pay, paying for medical services or use the money in whatever plan one has.

Life Insurance Policy Can Be Used to Borrow Cash to Buy a House or Educate Children without Tax Payments

Another reason why life insurance is safer than the stock market and mutual funds is that one can take a loan against the policy value without necessary paying it back. If the policy holder’s cash value is adequate, one can take a loan without any question. No application processes are required, and this cash-value loan does not appear in a person’s credit report.

The interest rates are relatively lower as a two-year personal loan has an average rate of 10.05%. One has to repay the loan on his or her schedule, and it is not a must for the policyholder to repay the loan. The outstanding amount can just be deducted directly from the insurance policy’s benefits.

Ability to Improve Returns and Lower Risks of Investment

The policy’s cash value is invested in a diverse investment pool of capital that includes bonds, stock and even in other investment fields such as real estate. There are some reasons why money invested in a life insurance policy can be used to perform investment in a distinctive balanced portfolio.

One, due to the large size of the investment pool, it means the cost of management is low compared to other types of investment. The policy allocates some insurance premiums toward the participating account and in return guarantees the cash value of the amount.

As a result, the policyholder has no risk of investment capital inside the policy, despite it being invested in assets that are subjected to change of value over time.

An example, if one has a policy worth $200,000 cash value and later receives $10,000 divided, the new guaranteed policy value will be $210,000, a cash value that will never decrease despite the corrections that might happen in the market.

Insurance Policy as a Security and an Investment

Life insurance ensures security for all beneficiaries of the policyholder upon his death where the agreed amount is paid to them. It reduces the burden of leaving them with nothing to plan on their new lives.

As a result, one is guaranteed of his or her family well stay even after his or her death. The cash value of the policy can be used as an investment by the insurance company where dividends from the profits are added to the policy’s cash value. The dividends earned from the investment increases the policy’s worth.


Despite using life insurance to keep a guarantee of a good life for the beneficiaries, it can be used as a tool for investment.

The highly paid individuals that are targeting to minimize their estate tax can use life insurance as a means of doing so.

Many reasons that clear that life insurance is safer than the stock market or mutual funds have been discussed nationwide, and people should consider its use to improve their lives.

Linda Chavez

I'm a burial & senior life insurance expert, independent agent, Founder & CEO of Seniors Life Insurance Finder. I have been working in this sector since 2004 and established my own company in 2014. I have a team of seven members, and we are trying hard to share the knowledge we've gathered. We know how difficult often it is to find an affordable policy. Hence, we are doing our best to help you.