Cash value life insurance is a type of policy that has premiums that will never increase, as well as coverage that can never be canceled. The availability of cash value is another feature of this type of policy. Many people hear cash value and think it sounds nice, but you might not be sure what it really means. We will go more in depth about what cash value life insurance is to help you determine if this is the type of coverage you need.
Cash value life insurance has a much higher cost than other types of coverage because the insurer is offering you coverage for life, rather than just a set number of years. The premium can be up to ten times higher than a traditional term insurance policy. The reason for this is because the premium you pay is based on the basic amount needed to insure your life as well as a second portion that is used to create cash value. This overpayment is invested by the carrier in many different ways. It can be used to invest in stocks and bonds, and there is almost always some type of guaranteed minimum growth. As time goes on, this cash value account will 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 basic permanent life insurance. The premium is level for life and there is a minimum guaranteed return on the cash value. You may also receive dividends, depending on which carrier you choose, and if they perform well.
Universal Life Insurance: This permanent coverage has more flexibility than other types because your premium is not fixed. You can pay more towards your policy if you want or you can skip some payments. The consequence is that your policy might lapse if enough premiums aren’t received or if your cash value account doesn’t grow.
Variable Life: This type of policy has more risk because you have the option of investing your premium payments. If your investments grow, then the cash value in your policy will also grown. On the other end, if your investment choices are poor, then your policy can lapse.
If you are considering a cash value life insurance policy, then it is a good idea to speak with an agent about your situation first to help you decide if its the right type of coverage for your family. Most people can obtain adequate coverage with a term life policy, but there are also many ways that a cash value policy can fill in some gaps.
It is best to compare multiple life insurance quotes to determine which type is most affordable for you. There is coverage available for children all the way up to age 85 life insurance.
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