My Smartest Investment

In the 1960s I bought “20-year paid-up” life insurance policies on my wife, children and myself. About 25 years later, I realized that these policies were just lying around with inflation eating them up. With much difficulty from the insurance company (I was told that no one would cash in a policy for 50 cents on the dollar), I cashed them in and put the proceeds in a growth mutual fund.

Now, 15 years later, I have at least twice the face value of the policies -- and no one had to die to get it! -- James E. Weddington, Concord, N.C.

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The Fool Responds

What a great lesson. There is certainly a place for insurance to protect your family against your untimely demise. But too many people incorrectly think of standard life insurance policies as investments. They’re simply protection. And as you noted, you do have to die to benefit from them.

What’s more, in family situations where your death wouldn’t create a financial burden for your survivors, your insurance needs may be minimal -- and the money you’d pay for insurance premiums could well be better put to use in the stock market or in other investments you control.