Whether you have a term life insurance policy or a cash value policy, you will enlist either one to protect your beneficiaries in case you’re no longer able to provide for them financially. Life insurance with cash value is also known as permanent life insurance, and it mainly entails two things; paying out when the policyholder passes away, and until then, it collects funds while the owner is still alive. The cash value can be used as a type of tax-sheltered investments, and you can earn returns on your premium payments.
You can use the earnings you receive from this policy to pay for your monthly premiums and withdraw cash if needed. Other forms of cash value life insurance policies are whole life, variable life, and universal life policies.
Another form of life insurance plan is the term life insurance plan. Here, you get to insure yourself for a set time, which is a specific number of years. If you pass away within the insurance term, the company will have to pay your beneficiaries the money that is owed to them. If you live past the term and the policy ends, then you won’t be getting any money out of it.
Many people go for life insurance with cash value because they feel that term insurance policies are too lengthy and the premium can get costly. Listed below are some of the benefits of investing in a cash value life insurance:
Premium Access:
With term insurance, the money that you invest in paying the company is usually lost until the return of the premium policy. Once you spend it, the insurance company claims it, and you will have no authority on that money. With cash value policies, the premiums you pay will be for your cash value account, and it will form the foundation of your policy. If you want, you can borrow from your cash value account in the future. There may be fees when you withdraw the money, but this depends on the details of your insurance policy. If you’re wondering how to calculate the cash value of your policy, then you will have to check out the cash value that is stated as the face value. The amount you get access to without paying any taxes is the face value without your base and any withdrawals that you may have made.
Tax-free Earnings
The cash value in your insurance and any growth in the cash value is entirely tax-free. So, when you withdraw the money, you have to ensure that the money taken is within the premium amounts that you have paid for; this way, you won’t have to pay any additional tax charges. If you cross the withdrawal limit of your cash value amount, you will be charged tax for it. The tax will be based on the difference between what you have paid and what you’re withdrawing.
The money in your pocket:
If you want to access the money in your life insurance with cash value, you can do so; you can withdraw the money needed to pay for any retirement expenses and to pay for any insurance-related costs. You can also carry out loans against your cash value account, but if you pass away without paying back the loan, then the amount will be deducted from the death benefit which will go to your beneficiaries. If you borrow against the full cash value and you pass away, then your recipients will receive nothing as death benefits.
You’re insured despite your health as you age:
When you take term life insurance, and if the state of your health begins to decline over the insurance term and if you want to buy another term, you may have a tedious ordeal in front of you wherein you may have to pay a higher premium. When you opt for life insurance with cash value, you will be covered even if there are any changes with regards to your health, lifestyle or occupation.
Alternatives to life insurance with cash value:
You can consider building up your savings through another medium. If you don’t want to take up risks, you can consider investing in bonds and CDs. Invest money in stock markets. This may seem like a good idea if you’re into taking risks and want to go for equity exposure. If you’re going to see significant returns on the money that you have invested, then you can invest in an index fund that has a low expense ratio.
