The media oftentimes refers to permanent life insurance as an investment, but is it really? Investopedia defines an investment as “An asset or item that is purchased with the hope that it will generate income or appreciate in the future.” Using that definition, cash value life insurance could be considered an investment. But then so could a savings account, as it is expected to generate income, i.e., interest. And so could a personal residence, as most people expect real estate to appreciate in the future.
The reason cash value life insurance could be considered an investment using Invetopedia’s definition is because it can generate an income in the future. In fact, many people buy it with the thought that if they don’t die before retirement, they can use the cash value to supplement their retirement income, if need be. Several of my clients are currently using their policies in such a manner.
However, a better definition, I think, is one from a securities class I took, which defined an investment as capital at risk. Using that definition, a savings account clearly wouldn’t qualify as an investment, although a personal residence would. A whole life policy would not qualify using that definition, but a variable life policy would.
But even if life insurance isn’t considered an investment, that doesn’t mean it isn’t an asset. Businesses and individuals routinely list cash value as a current asset on their balance sheets, as it is available to them within a matter of days.
The cash value though, is a non-correlated asset, meaning that the movement of other portfolio assets does not influence its movement. The cash value only goes up, never down (unless borrowed upon). This aspect can lend stability to the overall portfolio, while still providing its primary benefit, income tax free dollars in the event of death.
So it is my opinion that a non-variable life insurance policy is not an investment, as capital is not at risk. You may disagree and consider it an investment. But however it is classified does not take away from its primary role of delivering liquidity at a most critical time.