Cash value life insurance policies offer living benefits and may come with a higher price tag.Get Free Quotes
Cash value life insurance is a form of permanent life coverage that provides living benefits through accrued cash value. These living benefits can be accessed before the death of the insured. Commonly interchanged with whole life insurance, the term cash value life insurance serves as a general title for many types of permanent life insurance policies.
Let’s explore what exactly cash value life insurance is and whether such a policy is right for you.
Cash value life insurance is an umbrella term used to describe a variety of permanent life insurance solutions, all of which allow policyholders to earn cash value throughout the life of their insurance policy. Cash value builds as you pay your premiums; a percentage of each premium payment is set aside as tax-deferred monies that accrue at the interest rate specified in your policy. Cash values are meant to be accessed while the policyholder is living and are considered separate from the policy's death benefit, which is paid out to beneficiaries upon the policy owner’s passing and free from income tax.
Think of cash value as an investment or savings account. It is intended to be spent while the policy owner is still living, and can be put towards a variety of uses. You can use cash value to pay the policy premiums, take out loans, or save as a retirement income supplement. It is also available to withdraw if you are in need of cash immediately and no longer need life insurance; cash value life insurance allows you to surrender the policy and cash out with your balance.
There are several different types of life insurance policies you may choose from that build cash value. The most well-known is whole life insurance, but there are several others that might be more suitable for your situation.
Much like other forms of insurance, cash value life insurance comes with its share of advantages and disadvantages. The bottom line is: cash value life insurance policies give opportunities for loan or investment needs, but are some of the more expensive forms of life insurance.
Pros and cons of cash value life insurance include the following:
A cash value life insurance policy may be better suited for people in unique financial circumstances, but most people tend to opt for a lower-cost solution like term life insurance. Cash value policies are best for:
If you are interested in using cash values during your lifetime and you’re willing and able to pay higher premiums, consider a cash value policy. Due to the high premiums and limited opportunities for which the cash value is usable, many applicants choose to enroll in a term policy and explore other options for investments or retirement funds, like a 401k or IRA.
For more information on which type of life insurance policy might be right for you, contact your insurance agent or consult with a variety of life insurance companies. Many of the larger auto and home insurers have expanded to offer life insurance options. The following carriers offer term and/or whole life insurance policies:
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