While many people believe that life insurance policies only pertain to death benefits, cash value life insurance can accrue cash value over time of the policy. Cash value life insurance pertains to the process in which you can either withdraw cash or take out a loan against your life insurance policy.
Your cash value life insurance policy can grow over time through any interest earned, dividend payments, or any variable investment growth. Once the policy is surrendered before the death of the policy owner, then the cash surrender value is then paid to the owner. This cash value feature allows policy owners to not only have protection for their family but also utilize this as a savings and investment tool.
Types of Cash Value Life Insurance Policies
Cash value life insurance can come in various forms of policies, such as whole life, universal life, and variable universal life insurance policies. These forms of life insurance differ from term life insurance due to term life insurance not having a cash value. The cash value will accrue an interest rate over time as long as the premium payments are made within the time frames that they are given. Most of these life insurance policies will accrue an interest rate, but it is not always the case with a universal life or variable universal life contract. Without further adieu, the types of cash value life insurance policies include the following:
- Whole Life Policy – With higher cash values, this usually leads to significantly higher dividend payments, which will then either be paid to the policy owner, tact onto the cash value or used to purchase more paid-up insurance. After a certain amount of time and depending on the insurer, you will then be able to withdrawal the cash value or take out a loan. This could potentially affect your death benefits and leave your death benefits beneficiaries with a considerably lesser amount, but overall the policy will remain as long as the premium payments are being made. The cash value will eventually become equal to the death benefit when the policy gets to the maturity date, which is set at the age of 95 or 121. As this occurs, the policy will then be paid out of the death benefit, even if the policy owner is still living. There will not be any more premium payments once the life insurance owner reaches this maturity age.
- Variable Universal Life Policy – A variable universal life insurance policy is extremely similar to a universal life policy. One of the main differences will be the cash or account value will be allocated into separate accounts within the life insurance policy. As this policy matures, the cash value will continue to grow or decline, all depending on how well the fund is performing. Any excess payments of premiums will result in the cash value growth, and if there are not any payments made then the value will be reduced by the cost of insurance. The cash value of this form of insurance policy can be used to take out loans or can be withdrawn within the lifespan of the policy.
- Universal Life Policy – Within a universal life insurance policy, premium payments are made into policy cash value. The insurance cost is then deduced from the cash value and any excess premium payments then stay within the policy as part of the account value. The value is then either paid through a fixed rate of interest, or you may see growth being tied to a form of an index, such as equity index. Like the other two policies, you can take the cash value of this loan and take out a loan or withdrawal the value during the life of the policy. If there are no payments to be made, then the cash value will be deducted each month through the insurance cost.
With these policies, you are able to use these as forms of investment and can even be much safer and beneficial than other forms of loans.
Using Your Life Insurance as a Potential Investment
As mentioned previously, cash value life insurance policies can allow you to either take out a loan or withdrawal the money within your account, which leaves you money for potential investment. Cash value life insurance policies can be very advantageous in terms of investment, even if the insured is currently living and is completely healthy. Cash value life insurance policies can be a place for you to save and invest your money, can even enable you to see a positive internal return rate, all the while providing you superb life insurance coverage. If you are looking for ways to diversify your investments, then this is a viable way to do so, while at the same time you are protected and providing financial security to the ones that you love.