Should You Invest in Life Insurance? Here's What Suze Orman Thinks

Anyone thinking of investing in life insurance should read this Suze Orman advice.

Buying life insurance to provide protection for loved ones is a smart financial decision. Without a policy in place, surviving family members could face financial calamity after an untimely death.

But while buying life insurance to provide a death benefit is a good idea, choosing life insurance as an investment most likely isn't. Finance expert Suze Orman addressed this issue on a podcast in response to emails she received from people who had been "suckered into investing your money in life insurance policies."

Here's why Orman thinks investing in life insurance for retirement is a bad investment and not something most people should consider. 

Suze Orman strongly recommends avoiding life insurance as an investment 

When it comes to the question of whether people should invest in life insurance, Orman is very clear in her opinion. 

"Life insurance is life insurance, investments are investments, and they never, ever, ever should be combined," she said on her Women and Money podcast. "There are no places in your financial life for you to purchase an insurance policy, where you invest in this policy to get tax-free income later on in life, to get growth, and to replace retirement savings for you."

Orman is talking about whole life insurance which, as she explained, several people had emailed her indicating they had purchased. Orman said that many insurance professionals will sell this type of policy as a good investment because they claim it can provide a substantial amount of tax-free income in retirement. 

However, she warned that often the projected returns are overstated and that it's crucial to look at the guaranteed cash value and guaranteed death benefit, not just the projected cash value. She explained that once you consider how much the policy is guaranteed to provide, the numbers are much less impressive and most consumers find the returns they end up earning are well below what they could get with other investments.

Because these policies typically don't provide nearly as much money as the rosy projections suggest they will, Orman recommends just saying no to buying them. "Whole life insurance is not an investment that you want to touch on any level," she said. 

Should consumers listen to Orman on life insurance investments? 

Orman has some great advice about looking at the guaranteed cash value and about making sure to understand all of the details about purchasing whole life policies. 

The reality is, it is often possible for people to earn much more money with other investments besides life insurance. And most people do not need whole life insurance coverage because at some point no one will rely on their income anymore. 

A better option in the vast majority of cases is to buy term life insurance, which offers coverage only for a limited period of time when it is actually needed. Term life can be much more affordable, can provide a larger death benefit for less money, and does not have an investment component so those who buy it can use what they save on premiums and buy assets more likely to pay off for them in the end.