Life insurance products can be used for investments.(Photo: Thinkstock)

Story Highlights

  • Life insurance products can be used for investments
  • High net worth individuals are usually those best suited by insurance investment products
  • Most investors are best off with term life policies and a separate brokerage account

USA TODAY markets reporter Matt Krantz answers a different reader question every weekday. To submit a question, e-mail Matt at mkrantz@usatoday.com.

Q: Can life insurance policies be a good way to invest?

A: Insurance is typically used to protect consumers from unexpected losses. But there can be a component of insurance that fills an investment role for some.

There's a mind-numbing number of types of life insurance, and more are created all the time. Most are designed to take advantage of tax laws. These insurance products get even more complicated because they're comingled with insurance protections benefits.

All this creates a complicated issue for those looking to use insurance as investments. Variable universal life insurance is one option for people who want to use their insurance to invest.

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These life insurance policies allow their owners to make contributions, part of which goes to paying the cost of the insurance protection, and the balance can be invested in different investments.

There are drawbacks. The cost of the insurance protection rises over time, leaving less of the balance from payments you make to be invested. These financial products are also very complicated and may not generate the returns their owners expect. There are special cases where these insurance products make sense, usually for high net worth investors.

For most people, it's best to keep things simple. Buy a term life insurance policy to cover the need for financial protection in the case of death.

Term life policies are affordable. If there's money left to be invested, do that in a separate account with an online brokerage firm. You'll pay lower fees and enjoy fewer complications.