Cash Value Life Insurance Policy
Life insurance that earns cash value is a product that has several benefits compared to the less expensive term life policies that protect for a predetermined amount of time. It is a whole life policy that contains the attractive feature of cash value which the policyholder may borrow against.
How a Cash Value Policy Works
The premiums paid into a cash value life policy are apportioned in such a way as to use some of the money to pay for the life insurance benefit and another portion which accumulates cash value with tax free interest. This attractive feature allows the policyholder an opportunity to take a loan against the policy while alive.
Accessing The Cash Value In a Life Insurance Policy
There are several ways in which a policyholder with life insurance that has cash value can access their cash value life insurance investment. One way is by taking a loan against its cash value, remembering that the loan affects the payout of the death benefit. One can surrender the policy and take the cash value that has accumulated to that point. There is a withdrawal feature as well and the final way may allow you to use the cash value to pay premiums on the policy with that cash value if your financial situation requires it.
Finding an Insurance Policy That’s Right For You
Since cash value insurance plans are more expensive than term life insurance policies, cash value policies are a particularly favorable type of whole life policy for people with other retirement accounts that are maxed out, have children or dependents with disability who will require assets for care and treatment that is lifelong and those trying to build an inheritance plan that is tax free or to offset inheritance taxes.
Expensive Policy to Buy?
Compared to term life policies of comparable value, they may be between 5 to 15 times more expensive. Life insurance that builds cash value can be the right type of policy for the person who can afford it, but it is also a policy whose cost can cause the policyholder to find the premiums a problem in strained financial times and who therefore may let the policy lapse.
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Doesn’t every insurance policy have cash value?
No, term life generally has no cash value, other forms of permanent life insurance have the benefit of cash or loan values.
How long does it take to accumulate cash value?
The rapidity with which an insurance policy gains cash value varies greatly. Some policies can take years to accumulate significant cash value others that are structured as investment vehicles can accumulate value more quickly. Total cash value and how rapidly it accumulates should inform your decision making.
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