Among others, cash value life insurance is one of the very beneficial life insurance features you can have.
Since life insurance policies come with what makes each unique, permanent life insurance on its own comes with a lot of great offers.
As we know, purchasing a life insurance policy must be according to individual needs and specifications.
When the goal is to have coverage that lasts beyond your lifetime, permanent life insurance becomes a better option.
Whereas, for younger, healthier people that their goal is just to save. They may buy a temporary life insurance plan that lasts for a specific period.
Now, if you consider the cash value life insurance, here’s all you must expect from this policy.
What is cash value life insurance?
Cash value life insurance is another type of permanent life insurance feature that enables you to put cash away in an account.
That’s not all though, this policy lasts for a lifetime, so the savings you enjoy from it does not have to stop at some point but grow and acquire interests without tax.
The policy allows the policyholders to save a sum of money on their premiums. As the money matures to some point, the policyholder can withdraw from it or borrow against it during fund emergencies.
Borrowing against your cash value policy or taking out a loan from it will affect the beneficiary benefits.
In a situation where you take out a loan and refuse or forget to pay it back, the insurance company will replace the loan amount you took, including the interest from the expected beneficiary payout if you pass away.
Your beneficiaries get a lesser amount of payout as to what was expected.
Also, you can use the proceeds of your cash value to pay back your premiums. When you allow the cash value to build up and also accumulate interest for a long period, the extras can serve the purpose of paying your premiums.
However, the premiums you have to pay for your cash value life insurance can be more expensive than some other types of life insurance policies.
For example, a term life insurance plan has a very low premium, but the drawback to it is that it has an expiration date. So, it is called temporary life insurance for a reason.
How does cash value life insurance work?
First, the cash value comes as an element of permanent life insurance.
A permanent feature that allows you to throw some cash into some savings account and let it come to your rescue in time of need.
This type of policy comes with the freedom of options. So, when you purchase insurance that allows a cash value feature, you have to wait till it grows and accumulates.
The accumulation of the cash value now gives you the option of using it in so many ways.
It can even serve as a surrender charge. This means that a cash value life insurance policyholder can terminate the plan after some years of running it.
You can withdraw all you have saved if you absolutely need to, but this brings the policy to an end.
The surrender charge is paid to the insurance company for cutting short the policy.
Furthermore, your cash value grows with interests that are fixed or in variables and is tax-deferred too.
So, while it works in your favor for you to use as you please, there are some consequences or charges that may come with how you handle your policy.
Why is cash value life insurance a good option?
As we stated above, everyone has a reason for purchasing life insurance. Every policyholder buys coverage depending on individual needs and expectations.
While you have some gains out of this policy, you should also consider the expensive premiums.
However, this policy becomes a good option when you can first, afford to pay the expensive premiums regularly. Secondly, you have some family members you do not want to leave broke and heartbroken after you pass away.
It also becomes a good option when you want to have a type of funds that will come readily withdrawable when you need money.
Types of cash value insurance
Universal life insurance
Universal life insurance is almost the most common among policyholders. It is not expensive to maintain but you should know that not all universal life insurance policy builds cash value.
So, be sure to ask the proper questions to your insurance provider. But to be specific, Indexed universal is the type of universal life insurance policy that can build you a cash value.
Also, variable universal life insurance is another universal life insurance policy that builds a cash value policy for you. It operates through bonds, stocks, or other types of investment that can help you build up cash.
Whole life insurance
Whole life coverage comes with a fixed amount that will help to grow your cash value. You have to speak with your provider to know what works for them and if it will be good for you also.
This means your amount of premium stays the same all through your policy. Whole life insurance is simpler and may even grow your cash value faster.
Advantages of cash value life insurance
The stand-out benefit of this coverage is the permanent duration that comes with it.
Your coverage does not have to terminate along the way except if you wish to surrender your policy.
Again, this policy savings is always tax-deferred and still accumulate interest for you. So, while you build up some good cash, you gain interest from savings too.
When you eventually pass away, your beneficiaries can use the payout in any way it suits them. It may serve as a means to pay back debts, mortgage, college fees, or pay for whatever need they have. So, this is you looking out for your loved ones even though you are not there.
The part of being able to withdraw from your cash value or take out a loan is a plus for every policyholder of cash value life insurance.
Disadvantages of cash value life insurance
The expensive premium makes this coverage inaccessible to most people. Depending on the type of insurance, you may expect an increase in premium payment if you operate a variable premium policy.
Your cash value build-up will require patience because it takes time to accumulate.
So, when you purchase this coverage, you do not expect quick cash value funds immediately. And when it finally builds, withdrawing from it attracts tax and a dent in the beneficiary payouts.
Lastly, your cash build-up does not add-up to the beneficiary payouts in the event of your passing.
To sum up, life insurance policies come in different forms. It does not have to be about what the other person has in their policy. Insurance is a personal journey that must speak to your need to the tune you understand well enough.
Therefore, while cash value life insurance is a great idea, speak with your insurance provider in-depth and know how they can be of service to you.