What Are the Benefits of Cash Value Life Insurance?
A cash value life insurance policy can be a great way for policy owners to provide financial security in the event of a premature death. These plans feature a savings vehicle with favorable tax implications that can create a more lucrative death benefit when combined with the face value.
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Cash Value Life Insurance
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Permanent life insurance policies such as whole life and universal life feature a cash value account. They are considered permanent because they provide protection of the insured for their lifetime as long as the premiums are paid.
Benefits
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The life insurance policy builds value when the insurer invests a portion of the premiums into the market. Although there is a guaranteed minimum return rate, the investment performance can increase the amount credited into the account.
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Accessibility
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The cash value account is accessible to the policy owner at anytime. The owner can use the cash for emergencies or to build a cash reserve for long-term goals such as a child's tuition or to fund retirement.
Tax Implications
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Funds in a cash value account will grow tax-deferred, meaning that there is no taxation on the money or interest earned until it is withdrawn. A policy loan, which is when a policy owner borrows money from the account, is received tax-free.
Misconceptions
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Policy loans taken out by the policy owner are not required to be paid back. However, if the insured dies with the loan outstanding, the death benefit will be decreased by that amount.
Costs
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The cash value component adds to the cost of purchasing permanent life insurance. This policy is more expensive than term life insurance, which does not have a cash value account.
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