Quora Answer: Why Do Insurance Salespeople Pitch Life Insurance as an Investment?

The following is my answer to a Quora question: “Why do insurance salespeople pitch life insurance as an investment?”

Whole life insurance is not an investment.  A fully paid-up policy may function as a financial instrument, or as a form of leverage, but that does not make it an investment.  A way that high net worth policies are financial instruments is when the client buys the policy with premium financing.  Such policies are single-premium plans, not regular premium.  This means that there is a minimal payment from the client, and the rest is paid for by the bank.  The client then pays back the rest of the premium in instalments, at low interest.  For example, if the premium is $100,000 for $10 million coverage, and the minimum down payment from the policy owner is 20%, the client has paid $20,000 upfront for that $10 million coverage.  The rest of the premium is covered by the financing bank, and the client then pays the bank back in instalments.

This policy is now considered fully paid up, and may be borrowed against, should that need arise.  That client, if he has a relationship with the bank, may then take out a credit line that is, for example, 1.1 times the policy value.  In this case, that would mean a credit line of $11 million.  This means, in effect, the client has paid $20,000 to create liquidity worth $11 million.  This does not work for every single whole life plan.  This is a simplistic illustration to illustrate the point.  Finance works differently when you have money.  Wealth grants you access to options not available to the masses.