Cash value certainly does sound like a great thing, but when you’re talking about life insurance, you’ll have to do a little bit of analysis to determine whether or not cash value life insurance is worthwhile for you. The cash value referred to is actually a component of savings associated with either universal life or whole life insurance.
Both of these are much different from a term life insurance policy, which only provides coverage for a set period of time, such as 20 or 30 years, which doesn’t carry any cash value. You can’t cash in a term life policy or borrow against it, and the only time you can actually get any money from it is when you pass on at some point during the specified timeframe. For this reason, term life insurance is generally less expensive than either whole life or universal life policies.
Is Cash Value Insurance Right for You?
Cash-value life insurance policies are far more complicated than term life policies. Most people enlist the aid of a life insurance agent or financial planner to explain the many options available for cash value life insurance policies. Basically, the decision to purchase a life insurance policy that contains cash value will be tied to how much flexibility you need to have financially and how much risk you are willing to assume.
A whole life insurance policy is the simplest type of fixed policy because all aspects of it are permanent and guaranteed. This includes the price which must be paid annually, the return you get on cash value, and the death benefit. When purchasing universal life insurance, you’ll be able to vary the premiums if you want to, as well as the amount of coverage. There are quite a few types of universal life insurance, and all of them offer different risk levels and potential for cash value gains.
This is why it would be to your advantage to seek counsel from an experienced life insurance agent or a financial planner who can explain all the options to you. Armed with this information, you should be able to make a sound decision on whether a whole life policy or a universal life policy suits your needs better. Depending on your situation, it could very well be the case that neither one of these is really advantageous for your financial goals, and you’d be better off with a simple term life policy.
How You Can Use a Cash Value Policy
Not surprisingly, one of the big selling points from any cash value life insurance policy is the fact that you have access to that cash and can use it under certain conditions. For instance, you can access that cash value through strategic loans that allow you to have the money tax-free to use for whatever you want without restrictions found in other types of savings vehicles like IRAs, etc. And, you don’t even have to repay the loans since you borrowed from yourself. It’ll simply reduce the final death benefit.
You would also have the option of withdrawing the entire cash value and surrendering the policy, and this, of course, would end the life of your insurance coverage. Another possibility would be to use the policy to pay premiums once the cash value has reached a sufficient level. While all of these provide some tremendous financial flexibility to a policy owner, you’ll need to look into the details of any given policy to make sure you’re actually getting value for your investment.