How Does Cash Value Life Insurance Work and Do I Need It?
Cash value life insurance is permanent insurance, which means your premiums remain level and your coverage will always be in place. Another obvious attribute is the cash value feature. Cash value sounds like a very positive feature of a life insurance policy, but most of us don’t really know what it entails. This article will review how cash value insurance differs from other types so you can decide if its the right type for you. Cash value life insurance has a much larger premium than a term insurance policy because it is permanent coverage that will last you for the rest of your life. Based on your age and the amount of insurance you need, the premium could very well be up to ten times higher than a term policy. That’s because your premium goes toward insuring your life as well as investment portion that makes up your cash value account. This investment portion is set aside and put into various places like stocks, bonds, or other funds, and most companies guarantee a minimum return. As you make your premium payments, your cash value should continue to grow. You can access the cash value in your life insurance policy in one of two ways. You can borrow it by using the death benefit as collateral. The carrier will charge you interest until you pay it back. If you don’t pay it back then the amount borrowed plus interest will be subtracted from the face amount when you die. You can also access the cash value by surrendering your policy. Keep in mind that there may be tax consequences for doing that. There are three major types of life insurance that grows cash value: Whole life insurance- This is the most basic kind of permanent coverage. You have a level premium and a guaranteed minimum cash value. Some carriers may also pay out dividends, depending on how well the company performs. Universal life insurance- This is a more flexible type of permanent coverage because your premiums can vary. You can choose to pay more towards your policy and you can even skip a payment if you need to. The downside to this is that your policy can lapse if you don’t make enough payments or if your cash value account doesn’t perform well. Variable life insurance- This is a riskier type of policy because you can invest your premiums. This means that if the investments do well, you will have a policy with a large cash value account and your death benefit can even grow. The downside is that if the investments perform poorly, your policy can end. If you aren’t sure whether or not a cash value policy is right for your situation, then make sure you speak with an agent who can go over your needs and wants. While most families can get the right coverage with term life insurance, cash value insurance also has many long term benefits that you may find attractive. It is best to compare multiple life insurance quotes to determine which type is most affordable for you. There is coverage available for children as well as affordable senior life insurance. |