Is Life Insurance a Good Way to Build Savings? Here's What Suze Orman Says

It's probably not your best option in that regard.

The purpose of having life insurance is to protect the people who are most important to you from financial struggles in the event of your passing. Let's imagine you're the sole breadwinner in a family that consists of you, a spouse, and a child. If you were to pass away from an accident out of the blue, what would your family do for money?

It's a scary question to contemplate, which is why life insurance policies exist. And you may be surprised how affordable it is to put one into place -- that is, if you opt for term life insurance.

Term life insurance only covers you for a specific period of time. But that period can be lengthy. It's common to get a term life insurance policy that offers your loved ones protection for 30 years.

Now one thing you should know about term life insurance is that these policies do not accumulate a cash value. If you buy term life insurance at age 30, opt for a 30-year term, and find that you're still alive and kicking by age 60, you get nothing out of that policy (but you're still alive, so there's that).

On the other hand, whole life insurance policies do accumulate a cash value. And that's money that could technically count as savings.

But does it make sense to opt for whole life insurance for the savings component? If you ask financial expert Suze Orman, the answer is an emphatic "no."

There are better ways to build savings

It's easy to see why whole life insurance might appeal to some people. If you buy a whole life policy, you can eventually get some financial benefit from it, whereas with term life insurance, you might never get a payout from your policy.

But there's a big problem with whole life insurance -- it can be prohibitively expensive. In fact, it's not uncommon for whole life insurance policy holders to let their coverage lapse because they can't afford it.

That's why term life insurance is really your better bet. And if you're worried about missing that savings component, Orman says that shouldn't be a concern.

In fact, in a blog post, Orman says, "Do not let anybody tell you that your life insurance policy is a good way to build extra savings. Fall for that and you will end up wasting thousands of dollars over the life of the policy."

Take savings matters into your own hand

Life insurance and savings really have two separate purposes -- and should be treated as such. That's why your best bet may be to spend less on premiums for a term life insurance policy, but then use the money you're not spending on higher premiums to boost your savings account balance. That way, you don't end up throwing money away on whole life premiums.

Remember, the danger in whole life insurance is that if you stop paying your premiums, your coverage could lapse -- and you could end up with no savings and no insurance. So rather than run that risk, consider a life insurance policy that actually fits into your budget comfortably.