Life Insurance Policies that Offer Cash Value

Hello All,

Because of the increased benefits offered by cash-value life insurance policies their premiums are usually higher than those of term policies.  Cash-value policies offer the ability to use a portion of the policy similarly to a savings account. This is the reason you do not want them to be a lost life insurance policy.  You may borrow against it, invest part of it or even withdraw a portion to meet your current needs.  Premiums begin at a higher rate than those of term policies.  The increased initial rate accounts for the cost of purchasing the savings component of the policy.   The overall cost of cash-value policies versus term policies usually equalizes over time if the policy is purchased when you are young and health and kept active through your middle years.  You may even discover that your premium rate is lower than an equally value term policy would afford.

Cash-value policies are established by placing a share of each premium into what is basically a savings account.  This value of the account grows as more premiums are paid and reflects the cash-value of the policy.  Depending on your insurer and the details of the policy the account could increase at a fixed rate, a flexible rate or be dependent on the insurers’ rate of return on secure investments.  Policies vary on how you may use this cash value.  Most policies will allow you to borrow against it using it as collateral.  You may often be allowed to use the cash value toward your premiums.  You can also simply withdraw a portion of the money for immediate needs.  You must be aware that the withdrawal of the entire cash value will terminate your coverage.

When establishing your policy you should clarify what your beneficiaries will be entitled too.  Some policies disburse only a death benefit others may include part or all of the cash value.  Depending on the benefits allowed to those you name your premium rates may be affects.

Cash-value policies grow over time and it will be several years before there is a significant available balance.   When considering a withdrawal you need to double check your policy terms to make sure you are not going to accrue a surrender charge for accessing the account prematurely.  You should also be aware of any tax penalties you will be responsible for before withdrawing funds.   For your policy to be cost effective it should be in place for more than 15 years.  Cashing your policy in early will mean the loss of death benefits as well as the premiums paid into the policy.  The cash value simply will not cover the incurred expense. 

Both whole-life and universal-life insurance policies can offer cash-value options.  Whole-life policies are in place until your death unless you cash them in or fail to meet the premiums.   Premiums for whole-life policies are set in place when the policy is established.  You will either keep the same payment or know ahead of time that the cost will increase at an agreed upon rate.   Universal policies allow flexibility in rates and term coverage and end at a pre-specified date.

Cash-value policies can be a great financial move but do not establish a policy like this unless you can foresee leaving it in place long enough to benefit from the advantages it offers.

Until next time,

Michael Hartmann http://www.findyourpolicy.com/
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