Permanent Life Insurance

• With whole life insurance and universal life insurance, you pay regular premiums to the insurance company. Part of these premiums is used to fund the death benefit of your policy. Another portion of the money that you pay goes to the cash value. With some insurance policies, the company simply handles the investment choices for you and your cash value grows depending on the returns provided. Other policies allow you to choose your investments and have a little more control over the returns.
  
  

Comparison of Returns

• When you are interested in earning a return on your investment, the stock market is typically superior to investing in permanent life insurance. With permanent life insurance, you may receive a modest return of somewhere between 3 and 5 percent. By comparison, the averaged annual return of the stock market since 1929 has been 10.3 percent. This means that if you are after pure returns, the stock market is superior to permanent life insurance.
  
  

Costs

• Another difference to consider when investing in life insurance or the stock market is the costs involved. With life insurance, you typically have to pay a percentage of each premium payment that you make toward administrative costs. These costs could be as much as 5 to 7 percent of the amount you pay in premiums. When you invest in the stock market, you pay a transaction fee for each purchase of stock.
  
  

Volatility

• While the stock market can provide you with superior returns to investing in life insurance, it is also more volatile. When you invest in the stock market, it can move up and down rapidly when compared with life insurance. The cash value of your permanent life insurance policy should remain fairly level throughout the life of your policy. If you do not like the risks that come with the stock market, a cash value policy can provide a bit more stability.