Is term life insurance a good investment?

See how life insurance stacks up against other investment vehicles.
Calculate the return on investment on your life insurance policy.
Your age
Policy term
Coverage amount
Policy cost per year
Potential 20-year life insurance return (iROI)
if death occurs in the first year
if death occurs in year 20
Potential 20-year alternative returns
High-yield savings
Market account
IRA / 401k

Breakdown – Term life insurance return

Total ROI %
Coverage amountTermAnnual premiumTotal premium paidROI

Does investing in term life insurance make sense?
Life insurance can make for an incredible return on investment for your dependents. There’s just one caveat, it only pays if you pass away. Like with most highly rewarding investment vehicles, if the reward is big, so is the risk. If you take that out of the equation, however, there is no investment that could pay as much as life insurance could.

Take a $100,000 policy as an example. If the premium (the cost of the policy) is $600 per year – and you die on month 6 – your return would be $99,700 on your very small investment of $300. Even if you die within the last month of the 20th year of the policy, your return would be $88,000 on your 12,000 investment. However, if you outlive the policy, the return would be $0 on your $12,000 investment.
So while the risk varies based on your age, the return can be extraordinarily high.

Breakdown – High yield savings account

Does investing in a high-yield savings / money-market account make sense?
Parking money in a high-yield savings account makes the most sense for money that you want immediate access to, with little to no risk, yet you want a higher return than a regular checking or savings account. Unlike life insurance, where your investment could be a hit or miss, a high-yield saving or money-market account is guaranteed to pay out.

However, where there’s little (or no) risk, there is little reward. Such an account will never make you money, so it’s a relatively poor choice for an investment. The typical return ranges between 1% and 4%. In most cases, a high-yield savings account will not beat inflation.

Breakdown – Market investment account

Does investing in an investment account (stock/mutual fund) make sense?
Investing in stock or mutual funds is a relatively safe solution to growing wealth, but profit is never guaranteed. Take the year of 2022 for example. The S&P500 is down 11.5% YTD as of August 11, 2022, and that’s after a recent 3-month high.

Additionally, capital gains taxes are another way you lose out on profits. This tax ranges from 0% to 40% depending on your income bracket and when you sell the shares.

Breakdown – Retirement account

Does investing in an Individual Retirement Account (IRA or 401k) make sense?
Investing in an IRA or 401k makes perfect sense for a relatively safe long-term investment. You deposit money into your IRA, or deposit a portion of your paycheck into your 401k, and then choose a market or fund to invest in. The S&P 500 is typically the most common choice.

However, it’s important to note that such an account forces you to make the investment long-term as you can not withdraw profits at any time without penalty. In return, you do enjoy tax benefits you wouldn’t otherwise by simply investing in the S&P 500 directly.

Also, the amount you can invest annually for an IRA is capped at $6,000, or $7,000 if you are older than 50. For a 401k, that amount is much higher at $20,000 per year.