Before I even begin, I want to be clear that I am in no way offering investment advice or insurance advice or tax advice. Each person’s situation is different and should be treated that way.

As part of my job, I teach the personal management merit badge for the boy scouts. One of the requirements is understanding different investment tools. I have to talk about stocks, bonds, mutual funds, and other investments, including life insurance. I can understand talking about stocks, mutual funds, and bonds, but I have a harder time understanding why I need to address life insurance.

After doing some research, I have a better understanding why life insurance is discussed as a potential tool to invest, but I’m still not sold on the benefits of using it as an investment. Basic life insurance, or “term” life insurance, involves paying an annual premium in exchange for a death benefit. It’s very simple and not considered an investment in the traditional sense.

Cash-value life insurance is the type of life insurance referred to as an investment. With cash-value life insurance, the insured person pays an annual premium which is then first used to cover any actual insurance, fees, and expenses. Once those are covered, the remaining amount, the cash value, is used by the insurance companies and invested in various other tools. The idea is to have the cash value increase in value.

While this may sound like a good investment, there are some significant disadvantages including the fees and expenses, which can be high. Additionally, there are no immediate tax advantages. One of the big advantages of cash-value life insurance is that it helps defray the costs of estate taxes. It’s also another tool to invest money, but most recommend taking advantage of all other tools before using life insurance.

Right now, I’m still focusing on maxing out my other investment options and life insurance is not one of those.