Life insurance as Portfolio Diversification
Are you an investor? Or are you only an employee and have your job take care of your retirement portfolio? Either way your investment should always be diversified. Agents or investment brokers will always want to take all your extra (investment) money. Portfolio diversification in their book contains their products or services only. They are the best and only thing you need to do is trust them with all your money to be well off later on in life. On the other hand many insurance agents and brokers will tell you the same and try to have you invest all your spare cash with them.
Situation at 20 something
As the case usually is, the truth is somewhere down the middle. Individual for everyone. There are many pros and cons when it comes to both methods of saving up for retirement. It is important to always consider what is your primary objective. Early on in life (the 20s) you are typically looking to put some money away and save for marriage, start a family, buy a home and maybe even start a business. At this point your best bet is probably to put money into an aggressive investment fund and save up that way. The drawback to life insurance vs investment fund is higher maintenance fees. What is a smart thing to do at this age is to purchase a very cheap term life insurance, say 10-20 year term, which can secure insurability for you.
Situation at 30 something
When an individual reaches his/her 30s, then life situation changes. At this point there is a family and dependents to take care of and probably some loans and mortgage. You used part of the fund you created in your 20s as down payment for home, you may have some outstanding balances on credit cards, most likely a car lease and so on. This maybe a good age to go back and review the term life policy. No matter what your health status is now, you took out a term policy, which you held on to for several years. This policy now gives you the opportunity to take out another policy you can convert the old one.
Diversification through a whole life policy
A whole life policy, despite higher maintenance fees, has one great advantage. It creates something called an instant estate. What this means is that should something happen to you once a policy is issued, your family is guaranteed to be paid a death benefit from your policy (most often a lump sum payout is selected) regardless of how many premiums were paid. An investment portfolio will only payout what was paid in plus accrued interest.
Later purposes of life insurance
Another huge advantage a life insurance provides is its guaranteed amount. An investment fund does not guarantee anything. After years of saving your money, the extreme outcome could be that there is zero left for you. Life insurance on the other hand offers two numbers, neither of them is zero. There is the guaranteed income that regardless of market performance, is available to an individual upon policy maturation. The other number is a larger one and its exact number is defined by actual market performance.