Cash Value Insurance

Cash value insurance works on the same basic principle as term life insurance in that it provides a death benefit that can be cashed in by the beneficiaries when the policy holder passes away. This money can then be used to pay off any remaining expenses that are left behind at the time of death. In addition to these payments, however, cash value insurance also builds up a cash value that can be withdrawn at any time after a certain period and used however the policyholder likes.

Accumulating Cash Value

Cash value insurance often comes with a much higher premium than a traditional term life insurance policy. This is for a few reasons. First, this insurance policy allows you to put a portion of your premium into an account which is allowed to grow at a tax-free rate in order to build the cash value of your plan. Second, this policy is usually does not have a limited contract that can expire but rather covers the policyholder as long as they are living. The investments one makes with this policy will more often than not pay back the extra cost that comes with the high premium.

It is important for you to determine your life insurance needs and know exactly how long your cash value must be left to grow before you can access it. If you find you need the money earlier than your contract will allow you may find yourself facing a very expensive fee for pulling your investment early. It is also important to know what will happen to your investment if you allow the policy to lapse. Some insurance companies will pay back your investment while others will only allow you a portion of your earnings depending on how close you were to the maturation date on the account.

Once your cash value has matured there are a few options as to what you can do with the account. You can start using your policy like a universal insurance plan and allow your company to take your premium payments from the account. You can opt to continue your premium payments on your regular schedule to allow your investment to grow even further. You can also borrow and make payments into the account at your leisure, or simply take out a sum of money and have the loan deducted from your death benefit later.

What type of account your cash value insurance is invested in and how much your investment is expected to grow will depend on the individual contract that is drafted for you. The level of premium and how much you will be expected to invest in your cash value insurance each month will depend on the level of benefits you will be offered once the policy is cashed in at the end of your life. You will need to determine what level of coverage and monthly premiums you can afford before you sign onto a policy to make sure you are not taking on more than you can handle in the meantime.

Points to Consider

When you are signing up for cash value insurance you will need to do some math to determine whether or not the amount you are expected to pay into the policy is at a rate that you can still expect to earn a financial benefit from the policy. If you are paying more into your insurance than you can hope to see from your cash value then you are standing to lose a great deal on your protection. Have a financial planner look over your contract before you invest to determine whether or not the policy you have been offered is a smart financial move.

If you are signing up for cash value insurance that is tied to a term life policy you will have to see how difficult it will be to sign up for more coverage should your policy expire before your beneficiaries need to file a claim. You can add a guaranteed renewal clause to your coverage which will make it mandatory for your company to offer you another contract but with the already high premiums associated with cash value insurance you will need to decide if it is worth the added cost.

Above all, you will need to decide what you want to do with the investment that stems from your cash value insurance. The longer you leave your money in the account the more it will grow and the higher your benefits will be. But, logically, you will want or need to spend this money on something at some point. Having a clear idea of what the intention of this investment is will help prevent you from spending it too quickly or leaving it sit longer than necessary when you could have used the financial boost.

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