Cash Value Life Insurance

What is Cash Value Life Insurance?

Cash value Life Insurance is a kind of permanent life insurance policy that includes savings feature. The cash value is a portion of premium paid in investment account. It earns interest, which helps your money to grow. You can then withdraw or borrow in case of an emergency. The policy can also be used as Collateral for a loan. In short, this is an insurance that doesn't only cover death benefits but accumulates value in investment account.

The premium payment (you make each time) is split among three different categories:

• Cost of insurance: The amount required to fund the policy’s death benefit
• Fees and overhead: This includes the insurance company's operating costs and fees
• Cash value: It is the account within the insurance policy, which accumulates value

How does Cash Value Life Insurance Works?

The cash value in the insurance policy is the amount you would receive if you surrender your coverage and give up the insurance. In other words, the cash value in life insurance is separate from the death benefit. Your beneficiaries would not receive the cash value upon your death. In case you die, then the cash value is kept by the insurer.

You can access the cash value in various ways, but it mainly depends on the type of life insurance policy you have. Some of the ways are:

• Take a loan
• Use cash value to pay premiums
• Make a withdrawal
• Surrender the policy

The following Types of life insurance policies may include a cash value feature:

• Universal life insurance
• Whole Life Insurance
• Variable universal life insurance
• Indexed universal life insurance

Benefits of Cash Value Life Insurance

Some of the important benefit-s of cash value life insurance are:

• The policy gives lifetime protection. This means, you don’t have to be worried about the maturity date of the policy. Till you wish to withdraw, the policy will pay the death benefit until you die.
• Policy cash values grow income tax free.
• If you become disabled and your policy has a waiver of premium rider, the insurance company will pay either all or part of the policy premium.
• You can easily change your premium payment and death benefit, depending on the type of Permanent Life Insurance.

Should you Opt the Policy?

The compounding interest in the policy takes several years to grow exponentially. Also, for the first few years, the majority of your premiums go in covering the cost of insurance and fees. This makes the cash value accumulation slow. So your decision can rely on your age. In case, if you are older, then taking up cash value life insurance may no be suitable as the cost of your premiums will outweigh the benefit you see.