Can I buy life insurance as a way to force myself to save money?

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Asked October 14, 2013

1 Answer


Even though a life insurance policy can have a cash value, earns interest, and allows you to borrow against the cash value, it would be serious mistake to think of life insurance as a savings account in any way. If your only goal is to have a forced savings for your final needs, a final expense life insurance policy would be worth considering. If you want save money for your own future use rather than the use of future beneficiaries, then life insurance policies may not be of much use.

Some types of permanent life insurance have the potential to earn money in addition to the face value, but the savings tool built into such policies should be regarded as a tool, not as a primary savings vehicle. According to Clark Howard, the savings potential for an ordinary savings account is typically much higher than the savings opportunity in a conventional permanent life insurance policy.

This is not to say that you do not need life insurance. Whether you take out a universal life policy, a term life policy, or simply a final expense policy, you need to have life insurance to avoid adding a financial to your loved ones during an emotionally taxing time. Universal and variable life insurance have the potential for higher earnings, but they also have the potential to pay out at the face value without making any additional gains.

Instead of a life insurance policy to force yourself to save money, check with your employer, bank or credit union to find out if they have a savings plan available that can be automatically deducted from your pay. By putting a small amount, even as little as $5.00 per pay period, into a savings account before you see your paycheck, you can force yourself to save money and retain access to your savings in case an emergency arises.

Answered October 14, 2013 by Anonymous

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