When it comes to buying life insurance, the concept of cash value can be very attractive, but you need to do a lot of research and analysis to learn whether getting a cash value life insurance is worth it or not. Cash value is basically a portion of your investment or premiums that get saved up and grows. The premiums that you pay are divided into three categories. Firstly they are used to pay the fees and operational costs.
Secondly, to pay for the coverage, and lastly, a portion of it is saved in the cash-value account. This is unique because term life insurance that provides temporary coverage does not have any cash value. You can neither borrow money against the policy nor withdraw it when needed. The only time the term life insurance pays out is when you pass away. But that’s not the case with cash value life insurance. Let’s look at what you can do with the cash value and its benefits.
What can you do with the cash value?
The life insurance cash value offers many benefits, and you can do multiple things with it, including:
1) Make a withdrawal. You can make partial withdrawals when you want against the cash value policy. However, this will reduce the policy’s death benefits.
2) Withdraw all the money and give up the policy. If you intend to terminate your life insurance coverage, you can do so by giving up the coverage and taking the cash.
3) Use it to pay premiums once your cash value grows to a significant amount.
4) Borrow money against the cash value. The cash value allows you to take loans, but obviously, you will have to repay them with interest.
How the cash value grows in your account depends on the type of policy and coverage you opt for. There are multiple types of life insurance policies you can buy:
1) Universal life insurance is based upon market interest rates and the insurer’s performance.
2) Whole life insurance in which the cash value grows at a decided rate
3) Variable life insurance in which the cash value can be used in different aggregated portfolios offered by the insurance company
4) Indexed universal life insurance, which is based upon the performance of an index
All these insurance policies are permanent, which means you have coverage for your entire life as long as you continue to pay your premiums.
Should you go for cash value life insurance?
The decision to either buy a cash value life insurance depends on how much risk you are willing to take and how much flexibility you want to have. You will need a trusted life insurance agent to help you find the right options for cash value insurance. Also, we would recommend that you get a second opinion from a financial advisor before you decide to get cash-value life insurance.
The bottom line
One should definitely go for cash value life insurance, especially if they are young. Cash value is a portion of your investment kept in a separate account and is allowed to grow. You can then later withdraw the cash value for a loan or other purposes. But before you decide on what to do, make sure you search the market and take multiple opinions to find the best policy and coverage for yourself.