What are two disadvantages of using life insurance as an investment?

Life insurance is often praised for its benefits — but what about the downsides? If you’re considering using life insurance for protection, investment, or wealth building, it’s important to be aware of the potential drawbacks before committing.

Here’s what to watch out for.

1. High Costs for Permanent Policies

Whole life and other permanent insurance types come with higher premiums, often 5–15x more than term life. While they build cash value, the costs can eat into your budget — especially in the early years.

2. Slow Cash Value Growth

In most cases, it can take 5 to 10 years before the cash value becomes significant. If you’re looking for quick access to money, life insurance isn’t the ideal tool.

3. Surrender Charges and Fees

If you want to cancel your policy and cash it in early, expect surrender fees that reduce your payout. These fees often apply within the first 10–15 years of owning a policy.

4. Complicated Investment Options

Indexed or variable life insurance policies offer investment features, but they come with market risk, complexity, and fees. If not managed properly, you could lose value or reduce your death benefit.

5. Potential Tax Implications

While death benefits are generally tax-free, withdrawals or loans from your policy may become taxable — especially if you exceed the amount you’ve paid in premiums.

6. Misuse or Overselling

Some agents push permanent policies when a term life policy would meet your needs at a fraction of the cost. Always make sure you’re getting the right product for your situation.

So, Is Life Insurance Still Worth It?

Yes — if used correctly. The key is understanding the pros and cons before choosing a policy.

For pure protection, term life is often the best choice.
For long-term wealth planning, permanent policies can be powerful — but only if you can afford them and understand the trade-offs.