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What Is Cash Value Life Insurance?
Article 7 of 9 in Getting the Right Life Insurance Policy
Cash value of life insurance is the money accrued by the policy as premiums are paid. Only available in a permanent policy, the cash value of life insurance grows as a portion of the premiums pay into the account. There are several types of cash value insurance policies, with many benefits beyond the insurance payout such as:
- The cash value grows tax deferred the longer you keep the policy.
- If you stop paying your premium payments the cash value can make them.
- The accrued cash value of life insurance can be borrowed against or withdrawn in times of need.
- If you ever surrender your policy, you usually will receive the value you have built up.
- If the insured dies, the death benefit is usually the face amount of the policy plus the cash value.
If you are unsure whether or not a cash value life insurance policy is right for you, ask an agent for advice.
Cash Value Life Insurance Policy Loans
If you have a life insurance policy with cash value, you can request a policy loan to get a little financial help. After you borrow from your accrued cash value, you must pay it back. Contact your agent or insurance company and ask about terms of your loan before you make a decision to borrow from the cash value of your life insurance. Insurance companies each have different formulas on how much you can borrow and under what terms you will need to repay the loan, so contact your agent and get the facts about a loan from your policy.
TIP: You will need to repay your policy loan! Check your insurance policy carefully before you elect to take out a loan so you are aware of the terms of repayment.
Life Insurance Cash Value and Surrendered Policies
Life insurance policies with cash value can be a good financial asset, however, you may have more success closing the policy and investing the money elsewhere instead. If you surrender a life insurance policy with cash value to reinvest your money elsewhere, you may lose some of the value of your policy, and you will be uninsured. Do not surrender your life insurance policy without first consulting a life insurance agent or a financial adviser. You should consider getting a term life insurance policy to make sure you keep the life insurance benefit at a cheaper price.
BEWARE! Terminating your cash value life insurance policy will leave you with no coverage. If you still need insurance you will have to get a policy at your current age which could be more expensive than the one you cancelled. Think carefully before you access your cash value by terminating your life insurance policy.
Cash Value Life Insurance and Non-Forfeiture Options
A non-forfeiture option allows you get something for your policy in the event it should lapse by allowing you to access the cash value. Under the non forfeiture clause, the policy holder has a choice of getting the cash surrender value of his insurance or the loan value. There are several non forfeiture options that are available to a policy holder. Make sure you read the non forfeiture clause in your insurance policy or inquire with your agent on this option for your policy.
Three of the most common options for a policy holder under the non-forfeiture option are:
- Extended term insurance. Often this is the automatic option. The cash value (minus any outstanding loans) is used to pay for insurance equal to the face amount of the policy. The coverage will continue for whatever length of time the available cash can buy. Once the cash value is depleted, the policy has no further value.
- Reduced paid up insurance. The cash value can be used to pay for a reduced amount of insurance. The cash value purchases a single premium, fully paid up policy of the same type as the original plan.
- Cash surrender value. The policy is surrendered to the insurance company which then pays the policyholder the current cash value. This option leaves the policy holder without life insurance.
Permanent or Cash Value Life Insurance policies provide the security that you will always have insurance when needed, and provide cash in emergencies. Cash Value Life Insurance rates vary from company to company. You should shop and compare quotes from several insurance companies to ensure you are getting the best price with the best options. To get started, click here to take advantage of the Free Advice quote center today.
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