Cash Value Life Insurance

If you are in the market looking for a permanent life insurance plan, you may come across cash-value life insurance. Cash value is also a component or feature of some types of life insurance policies. Insureds use this component as an investment-life savings account and take an amount from it.

While getting cash-value insurance may seem like a smart choice. But before deciding on the final type, it’s important to understand what cash value life insurance is, how it works, and its features to determine whether it’s the best fit for you. Want to do so? Here is a quick guide for you!

What is Cash Value Life Insurance?

Cash value life insurance is a form of permanent life insurance that offers both a death benefit and a saving component to the policyholder. This plan lasts for the lifetime of the insured and he/she can use the cash value for various purposes like borrowing or withdrawing cash or paying the policy premiums.

Typically, a part of your paid premiums is invested by insurers which grow tax-deferred with time by earning interest. The interest rate is either fixed or variable depending on the type of life insurance you may have. This feature makes this plan an attractive option for those who want to build some wealth or access cash for their needs.

How does it work?

Cash value insurance is a permanent life insurance as it offers coverage for the entire life of the policyholder. Generally, this plan has higher premiums as compared to term life insurance because of the cash value part. A portion of each premium payment goes towards the insurance cost and the other is deposited into a cash value account.

As the cash value of the life insurance plan increases with time, the insurer’s risk decreases as the accumulated cash value offsets part of the insurance company’s liability.

Benefits of Cash Value Life Insurance

Here are some of the main advantages of getting cash value insurance:

Death Benefit

As mentioned earlier, it’s a permanent life insurance plan, which means it remains in effect the whole life of the policyholder. However, the insured has to pay the premiums to keep his plan active. In case of his death, the designated beneficiaries of the plan receive a death benefit.

Insurance Plans’ Dividends

Many permanent life insurance policies are “participating” which means that the policyholder can get life insurance dividends if the plan is from a mutual insurer. However, the dividends will be taken as cash, used to pay the premiums, added to the cash value, or maybe used to purchase “paid-up additions” that increase the death benefit.

Riders for Extra Coverage

Accelerated death benefit is one of the most common life insurance riders available that is ultimately included at no extra charges. You can also add similar riders but with extra charges for critical illness, chronic illness, or if you want long-term care.

Tax Benefits

The cash value amount accumulates on a tax-deferred basis. So on the accumulated cash value amount, the IRS doesn’t charge tax. Moreover, if the insured borrows money against his plan, he will not have to pay taxes on that amount. In case of the policyholder’s death, his beneficiaries will get tax-free death benefits.

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Types of Cash Value Life Insurance Plan

Generally, there are three main types of cash-value life insurance including:

Whole Life Insurance

It comes with a fixed premium, a fixed death benefit, and a guaranteed rate of return on the cash value.

Universal Life Insurance

It is more flexible towards premium payments and death benefits as compared to whole life. The cash value component of this life insurance can also be invested in different available options.

Variable Life Insurance

This plan allows the insured to invest in different investment options. These investment options may include bonds, stocks, and mutual funds.

Is there a cash value for term life insurance?

Simply no, there is no term life insurance cash value. The reason is the term life insurance plan is designed to last for a certain time. But if you want a cash value component on a new term life plan, ask your insurance provider if it’s possible. Another way to get cash value on term life insurance is to convert it to whole life or any other type of permanent life insurance.

Is a cash-value insurance plan the right option for you?

Getting a cash-value life insurance plan depends on how much risk you can assume and how much flexibility you may want with your insurance policy. However, if you need temporary and cheap coverage you can also opt for term life insurance instead of cash value.

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Our licensed agents at Insure Guardian strive to offer you free consultation and guidance about your life insurance plan. For a free quote consult our professional now at +1(800)6956528.