The Unexpected Type Of Insurance That Can Increase Your Net Worth

For many, building toward the life of their dreams requires capital. While money can't buy you happiness, it certainly greases the skids and unlocks new and interesting opportunities. So, net worth can be an instructive tool to gauge progress toward your goals, whether that's a few years down the line or years into retirement. You can gauge your progress on this front by comparing your net worth to those of others in your age group, or evaluating the assets you own that are likely to appreciate over the long term. Homes and investment accounts are big-ticket items here, but one particular type of life insurance tool can also fit neatly into this conversation: a permanent life insurance policy. This type of policy might not always come to mind when you consider life insurance options, but it features the unique benefit of growing in a tax-deferred fund that may even feature a maturity date that makes that money both accessible to you — not just your named beneficiaries — and tax free.

An asset like this isn't for everyone, but those looking to double up on their wealth building and financial security tasks might consider one or more permanent life insurance products to support their various goals. Rather than a term policy that puts an expiration date on when the benefit can be paid out in the event of a death, permanent life insurance is, by definition, permanent. This adds some tangible benefits to the financial mix of savers who desire this expansive backstop.

It's important to understand that permanent life insurance costs a lot more than a term policy. For example, Experian estimates whole life insurance — the most common form of permanent life insurance — is 15 times more expensive, and that figure only gets pricier as you age. Term policies create a platform of financial continuity should the worst happen during an important stretch of your life, such as when your children are young. Naturally, most hope they'll pay into this type of policy and never end up using it. Permanent coverage is different: Someone will always enjoy the payout of your benefit, and that person could be you. That certainty may lead some to consider this as a viable means of passing on wealth. However, policies tend to exhibit a poor opportunity cost compared to other ways you could invest that capital, which is one reason why retirees often regret buying whole life insurance or find other unexpected assets to boost their net worth.

On the other hand, these types of policies do start to accumulate a cash value. Unlike a term policy, that value gets rolled into your net worth calculation. Under some circumstances, you can gain access to these funds, either as a payout or in the form of a loan against the balance. Permanent policies may also be sold, providing a new source of funding for your life in retirement. Yet, these avenues also suffer from drawbacks. Cash value doesn't typically accumulate at quick paces, and depending on your policy, there may be terms limiting your resale value or availability.