What is Cash Value Life Insurance?
Cash value life insurance is a life insurance policy that allows you to build cash value in a tax-deferred investment account that’s accessible throughout your lifetime, while you remain insured with long-term life insurance coverage. Investing in a cash value life insurance policy helps provide Space to Breathe and the continuity of wealth for you and your loved ones during your lifetime and in the event of your death.
What are the Benefits of Cash Value Life Insurance?
A portion of your premium goes into a tax-exempt investment account that accumulates cash, which can be withdrawn later for retirement income or other purposes, used as collateral for loans, or used to pay off your future insurance premiums. Cash value life insurance is cost-effective long-term coverage with death benefits that can increase over time.
How Does Cash Value Life Insurance Work?
A portion of each of your premium goes toward insuring your life, while the other portion goes toward accumulating cash value. There are two main types of cash value insurance policies: 1) a guaranteed cash value insurance policy, which has a guaranteed rate of return, and 2) a variable cash value insurance policy, which has a rate of return that fluctuates based on the stock market or interest rate. The portion of your premium that goes toward the cash value can be withdrawn within your lifetime, while the portion of your premium that goes toward your death benefit will be received by your beneficiaries upon your death.
Cash Value Life Insurance 101
Can I withdraw money from my life insurance policy?
You can withdraw money from your life insurance policy if the policy you purchased has a cash value. A cash value life insurance policy allows you to allocate a portion of your premium into a tax-deferred investment account that’s accessible throughout your lifetime. Not all insurance policies have a cash value component, so it’s important to buy the right kind of life insurance that will fits your needs.
Which is better – cash value or non-cash value life insurance?
It depends on why you purchased the insurance in the first place. If the purpose is to pay off a debt in the event of your death, such as a mortgage, then a non-cash value policy might be the best option for you – it offers the lowest short-term cost and can easily satisfy all your needs. If the purpose of the insurance is to provide your estate with liquid cash to pay estate tax at your death, then a cash value policy might be the better option. It offers increasing death benefits, can be paid up, and may be more economical over the long term. If the purpose is to assign the policy as collateral to secure a loan, then a cash value policy is the only option.
Can I get money back if I cancel my life insurance?
If you cancel a cash value insurance policy, you will get money back, and depending on how the policy is set up, you may even get back as much as you put into the policy or more.