When you purchase term life insurance, you receive coverage for a predetermined period of time, such as 10 or 15 years.
Furthermore, term life insurance policies do not have a savings component.
Cash value life insurance is entirely different, as this is associated with any type of permanent life insurance, such as whole life.
Thanks to an investment component, your policy has the potential to increase in value over time.
While this isn’t the primary reason to purchase whole life insurance, it’s an added benefit that may point you in this direction.
What Will You Do With the Cash?
The number one reason to purchase any type of life insurance is to provide your loved ones with a lump sum payout in the event of your death.
With cash value life insurance, this is exactly what you’re doing. However, you’re also in position to accumulate a cash value over the course of your policy.
You can use this cash in a variety of ways, including the following:
- To pay future life insurance premiums (once you have enough money)
- Make withdrawals, such as to pay for education expenses
- Borrow against the cash value (if you don’t repay the money it reduces the death benefit)
- Withdrawal the cash value and surrender the policy (meaning you’ll no longer have coverage)
While there are many options for using the cash you accumulate, you’re not required to do so. Instead, you can let the cash grow over time, all with the idea that it will be paid out to your beneficiary upon your death.
Should You Buy Cash Value Life Insurance?
Now that you’re familiar with the benefits of cash value life insurance, as well as the many ways you can use the money, you have a decision to make:
Will you purchase this type of policy?
For some people, term life insurance is exactly what they want. The only thing they’re concerned with is obtaining coverage for a specific period of time.
Others realize that they can get more from their life insurance policy if they purchase the right type.
Since cash value life insurance costs more than term coverage, you need to review your budget with an eye toward how much you can afford to spend.
You don’t want to make the mistake of buying more than you can comfortably afford, as this could lead you to drop the policy at some point.
Also, make sure you don’t skimp on coverage all with the idea that you can benefit from the investment component. The most important thing remains your ability to provide your loved ones with a death benefit when you pass on.
If you’re a high-income earner who’s looking for new ways to invest, cash value life insurance is an option to consider.
Also, if you’ve maxed out all your investment accounts, such as an IRA and 401(k), you can turn to cash value life insurance as another method of saving for the future.
Different Kinds Of Cash Value Life Insurance
There are different kinds of cash value life insurance. They all come with advantages and disadvantages. They all have a life insurance portion and a cash value portion. The main difference between all the cash value policies is how they grow the cash value, and how they calculate the death benefit.
Here is handy list for you to understand them better:
Universal Life (UL)
This product has been around many years. The main advantage of it is a lower cost as compared to other types of “permanent” coverage. It used a fixed account that earns a specific interest to grow the cash value. When interests are low, a Universal Life insurance is not a very attractive solution to grow cash value.
Variable Universal Life (VUL)
A variable universal life uses the sub-accounts (similar to mutual funds) to invest in the market. The performance of the investment selected will determine how much cash value is accumulated in the account. It has a growing “Cost Of Insurance” which can reduce the cash value as you age. You can also read: Whole Life vs VUL
Index Universal Life (IUL)
Indexed Universal Life is similar to a VUL, but it has many moving parts. An IUL uses an index (like the S&P 500) as an “investment” vehicle. If the index goes up, you get a percentage of the gains. If the index goes down, you usually do not loose money, as there is a limit to how much you lose.
Whole Life Insurance
Whole life is an older product and it’s the original type of life insurance. Your cash value grows modestly and every year it grows. The company that issues the whole life, usually has a guaranteed interest rate that it pays on the cash value. Also there are whole life companies that pay a dividend on top of the guaranteed interest rate.
Take a Closer Look Today
You can learn as much as you want about cash value life insurance, but you’ll never really know if it’s right for you until you compare your options.
Get started by requesting a minimum of three cash value life insurance quotes. From there, compare everything from the premium to the death benefit to the way you accumulate cash.
At that point, you’ll have a clear understanding of how much you have to pay for a cash value life insurance policy that provides the death benefit you require. It’s this knowledge that allows you to make an informed and confident decision that will benefit you and your family now and in the future.
Leave us a comment… Which is your favorite type of Cash Value Life Insurance?