Life insurance policies are as varied as the people who buy them. You can find almost anything to suit your needs, from whole life coverage to coverage for certain periods, to supplemental benefits. Cash value life insurance is a type of policy, usually a universal or whole life policy, which has an added cash savings component. This means that while you pay your policy premiums, you also pay into, effectively, a savings account
This is an interesting type of insurance! You might wonder what you could possibly use this for, or when, but here are a few examples:
A tax-sheltered investment
A method to pay policy premiums in future
A benefit to passing on to their heirs
These are just some of the most common uses; you could use the money for absolutely anything you want. Medical expenses, to care for a loved one, a down payment – you name it – there are no restrictions on how you use the cash.
The key to cash value life insurance is to get a policy as early as possible. The younger you are when you purchase the policy, the greater the amount of your premium that gets directed to your cash value. Therefore, the younger you are when you secure a policy, the more rapid the accumulation of your cash value. You can absolutely purchase a cash value life insurance policy whenever you wish, but keep in mind that you won’t get the impressive retention of cash that you would have otherwise – or such an affordable premium.
Universal life policies, and some whole life policies, contain cash value aspects. It is always important that you review the terms of the policy to ensure you understand the requirements of making a withdrawal against your policy.
As previously mentioned, the fine print is key. Many policy holders never withdraw their cash value. What’s the problem? If you don’t use the cash value before you die, it essentially disappears unless you provision for it. Usually (not always), your insurer will agree to increase your death benefit in exchange for the cash value of the policy if you never intend to use it anyway. This would be a dollar for dollar trade, of course. So, if you have $50,000.00 in accumulated cash value, you’d want your insurer to honor that value by increasing the death benefit by the same amount.
Another option to avoid leaving your funds unused is to use them to cover your insurance premiums. Eventually, you are going to find yourself on a fixed income (hello retirement!), so why not ask your insurance company to tap into your cash value to cover your monthly premium costs from here on out? Now you have insurance but no longer have to budget for those premiums.
Finally, you can always take out your cash value as a loan (whole life) or as cash (universal life) and use it however you like. One thing to remember about this option is that for whole life policies, it will be deducted from the value of your death benefit. On the other hand, you are under no obligation to repay this loan the traditional way, so it’s a bit of tit-for-tat.
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