When it’s time to organize your life and look for coverage that provides protection and builds wealth, cash value insurance should be your next stop. Having the opportunity to access funds while still protected is a big advantage for you, especially if you are a business owner and have a family.
Suppose you are shopping for an insurance plan that offers flexibility in premiums and an option of life-long coverage, you need to read through. This article will explain what a cash value life insurance is, how it will help you accumulate money and other benefits you stand to gain.
What is cash value life insurance?
Cash value life insurance is a type of permanent life insurance that has a savings feature. There are different permanent life insurance policies you can buy and have access to this feature.
The cash value feature in your insurance policy serves as an investment vehicle where your insurance provider helps you save a part of your premium. When this is in place, your money begins to grow with a percentage of interest and without tax.
The cash value feature of your permanent life insurance plan can be a source of income when you need a loan. However, the withdrawal or borrowing method depends largely on your type of coverage policy.
How does cash value life insurance work?
It has to do with your premiums. When you pay for your premium, your life insurance company divides your premium into two but not equally.
One part of your premium will be used for your coverage while the other portion goes into your cash value investment. This way, your cash value accumulates money and interest, regardless of when you pay your premium; monthly or yearly.
Your cash value interest grows according to your preferred life insurance coverage plan. When your cash value investment accumulates enough money, this is when you can borrow against it.
More so, cash value insurance offers beneficiary benefits to a policyholder. Beneficiary benefits are a lump sum of money your loved ones receive from the insurance company in the event of your passing.
The beneficiary benefit is tax-free and can be used by your loved ones to solve problems. It also serves as a medium of paying back your cash value loan suppose you borrowed from it and could not pay it back before you passed away.
Types of permanent life insurance with this feature
Opting for the cash-value type of permanent life insurance means you must buy any of the following policies.
- Indexed universal life insurance
- Universal life insurance
- Variable life insurance
- Whole life insurance
Benefits of cash value life insurance
Aside from helping you to build wealth by saving, there are other things you can benefit from this type of insurance coverage.
- Paying your premiums
Firstly, you have to check in with your insurance provider to ensure it is obtainable in their policy. However, your investment can pay for your premium if you suddenly go broke.
It is an unlikely situation but one that can not be ruled out. If this is the case, ensure you do not run down your savings because it can hurt your coverage.
- Withdrawal during financial storms
Your cash value can be a fallback when you need emergency funds. If you need money to hold on to while figuring out other things, you can withdraw from your savings.
Withdrawing too much from your cash value will affect your loved ones’ beneficiary benefits. So, it’s better to do it wisely.
- Loan Opportunity
Taking out a loan from your savings is very possible. In fact, it is one of the reasons why the cash feature is there in the first place.
However, this option comes only when you have saved enough not to hurt your investment and coverage.
Conclusion
Going for this type of permanent life insurance demands you ask questions and shop for quotes. A good insurer can help you maximize the benefits of cash value insurance.
