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Most people, when asked, will tell you that life insurance is one of the simplest forms of insurance on the market. Pay your premiums on time and, in return, the company will pay your beneficiary an agreed-upon sum after you die.

Many smart investors, however, know that policies known as whole life insurance can be part of a savvy investment strategy. Yes, life insurance only triggers upon the demise of the policyholder, but the premiums paid to the insurance company have a nominal “cash value” that can be used both as a tax shelter as well as collateral for a loan.

Some experts say that the returns on investments in whole life insurance are relatively low and that the necessary fees are higher than other investment options. Others argue that term life insurance, an option where the policyholder only pays premiums for a set amount of time and one that cannot be used as an investment vehicle, are a better fit for some individuals. But proponents of investing in whole life insurance say that these ironclad vehicles are a great hedge against risk.

Indeed, there are special circumstances that are particularly favorable to selecting whole life insurance as an investment vehicle. In cases where long-term care for children or disabled adults needs to be funded, whole life insurance policies can be a great way to protect funds. Other special use cases that favor investing in whole life insurance include providing liquidity for a business or circumnavigating issues related to estate taxes.

Other experts contend that the average individual has far better options than investing in whole life insurance to provide funding for their retirement. Options like IRA and Roth IRA accounts and employee-matched 401(k) funds usually have a lower investment threshold and less severe fees. Another issue that weighs against investing in whole life insurance is that few people are in a financial position in order to afford enough life insurance to make it a worthwhile investment. Indeed, only the top 20% of income earners in the United States have the earning power for purchasing whole life insurance to be a smart part of their investment strategy.

Wealthier individuals often reach built-in limits to how much they can contribute to tax shelter investment like 401(k) plans, IRAs, Roth IRAs, and 529 plans (for individuals with children), which is when options like investing in whole life insurance become more attractive. In effect, a whole life insurance policy acts as a tax-deferred annuity with virtually no cap. High earners who are risk averse can make great use of whole life insurance policies as a way to diversify their investment portfolio.

In order to consider whether whole life insurance or term life insurance is best for you, the first thing to consider is your primary purpose in purchasing life insurance. If you are seeking a reliable way to provide for your loved ones after your passing, term life insurance is probably your best bet. Indeed, many financial experts recommend buying term life insurance and using the money saved on premiums to be invested in tax-deferred options like IRAs and 401(k) plans. But if you are looking for stable, relatively risk-free vehicles to invest in as a tax-deferred annuity, a whole life insurance policy can be a smart inclusion to your comprehensive investment strategy.