Financial investments can ensure financial security for you and your loved ones. In addition, life insurance can be a great asset to your overall portfolio and provide a cushion in case of retirement.
Although many investment options are available today, life insurance is one of the most appealing options. Most Americans think so, too. Approximately 52% of them have life insurance.
Definition of Cash Value Life Insurance
Cash value life insurance is a form of permanent life insurance. It lasts for the lifetime of the policyholder and features a cash value savings component that the holder can borrow against, withdraw in a tax-advantaged way, or use to pay policy premiums.
Below are a few things you need to know about the four main types of cash value life insurance: whole life, universal life, variable universal life, and indexed universal life.
Whole life insurance is a permanent life policy with a fixed rate of return on the cash value. The premium rates for this policy remain the same throughout your life. If you take out this insurance policy while younger, you’ll enjoy lower premium rates for this type of life insurance because of your age. However, it has higher premiums than other policies, such as term life insurance, because of added benefits.
Universal life insurance is permanent life insurance coverage with a death benefit and cash value that remains in effect for the lifetime of the insured as long as the premiums are paid on time.
Policyholders can have flexible premiums and change their death benefit amount, differentiating universal life insurance from other types of permanent life insurance policies. The cash value component earns interest based on a money market rate or a market index.
Variable Universal Life
Variable life insurance is permanent life insurance that includes a flexible premium and a built-in savings component that allows the policyholder to invest the cash value, similar to a mutual fund.
Since market fluctuations can generate significant returns and losses, policyholders should carefully assess the risks and consider using a financial advisor.
Indexed Universal Life
Indexed universal life insurance is permanent life insurance with a cash value component that can earn interest by tracking a stock market index the policyholder selects, such as the S&P 500. Policyholders can also have a fixed-rate account and choose the amount they want to go into the account.
How Does Cash Value Life Insurance Work?
Cash value life insurance acts as a savings account since you can withdraw money while still alive. The policy accumulates cash value over time, which you can borrow as a loan, use to pay premiums, or withdraw as cash. Moreover, you can surrender the policy and redeem your cash minus the surrender fee.
Some features of this policy are summarized below:
What Are the Key Features?
- Cash value life insurance is a policy with a cash value component, which accumulates over time.
- The cash value earns tax-deferred interest on any accumulated earnings.
- The premium payments are higher than term life insurance since the money covers the cost of insurance, overhead fees, and cash value.
- The cash value is distinct from death benefits. Typically, beneficiaries do not receive the cash value upon the insured’s death. Instead, the insurer keeps the cash value when the insured dies.
- You can take withdrawals from the policy. However, gains from the investment benefits included in the withdrawals are taxed.
- If you surrender your policy, the coverage is canceled. But you’ll receive the policy’s cash value minus the surrender fee, unpaid premiums, and loan balance.
A cash value insurance policy can be an excellent investment and provide a death benefit to beneficiaries.
ABC Dennis Insurance Agency
ABC Dennis Insurance is an independent insurance agency established in 1997 that provides life insurance to its customers. If you have not reviewed your insurance coverages this year, please call our office at (813) 949-7765 or email us.
Besides homeowners insurance, we can help with all your insurance needs. As an independent agency, we find the best insurance coverage with the most competitive rates.