Guaranteed Cash Value Life Insurance
What is Guaranteed Cash Value Life Insurance?
Guaranteed Cash value life insurance is a life insurance policy that has guaranteed cash value as part of the three guaranteed values in the policy contract (the other two being guaranteed premium and guaranteed death benefit). The guaranteed cash values grow as scheduled in the policy contract. Non-guaranteed bonuses or dividends also create guaranteed cash values after the bonus or dividend is paid to the policy. Any growth of the guaranteed cash value inside the policy is tax-deferred. Investing in a guaranteed 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 Guaranteed Cash Value Life Insurance?
A portion of the premium and the bonus/dividends create guaranteed cash values. The cash values grow at predictable rates throughout the life of the policy and cannot be reduced unless requested by you as a withdrawal or used to pay future premiums. Guaranteed cash value can also be used as collateral for loans. As compared to Investable Cash Value life insurance, the policy owner cannot choose to invest the cash value in other investments inside the policy. Guaranteed cash value life insurance is cost-effective long-term coverage with death benefits that can increase over time.
How Does Guaranteed Cash Value Life Insurance Work?
A portion of your premium goes toward insuring your life, while the other portion goes toward the guaranteed cash values. Every year a bonus or dividend is paid that purchases additional amounts of insurance called Paid Up Additions (PUAs). These PUAs also have guaranteed cash values. The total guaranteed cash value is an asset to the policy owner and can be used to help fund the policy premium, be withdrawn within your lifetime or used as collateral for a loan. Upon death, the initial insurance benefit plus the PUAs are paid tax-free to the beneficiary. The guaranteed cash value is not paid in addition to the insurance benefit.
Which is better – guaranteed cash value or investable cash value life insurance?
It depends on your goals and why you purchased the insurance in the first place. If the purpose of the insurance is to provide your estate with liquid cash to pay estate tax at your death, then it might not matter which policy you choose. Often the choice comes down to the ability to choose how to invest the cash value. Guaranteed cash value allows for a hands off policy with no ability to make investment adjustments. Investable cash value insurance provides the ability to manage the cash value like an investment account making changes as goals, objectives and markets change. Guaranteed cash value insurance offers increasing insurance benefits. Investable cash value insurance allows the cash value to be paid in addition to the insurance benefit. There is no right or wrong answer. However, if the purpose is to assign the policy as collateral to secure a loan, then a guaranteed cash value policy is the most ideal option.
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.