Should I Buy Cash Value Life Insurance?
Buying the right type of life insurance can help secure your financial future as well as the financial futures of your beneficiaries. When trying to decide what type of insurance you should buy, you may be considering a cash value life insurance products such as whole life or universal life insurance. Before buying this kind of insurance, there are a few things to consider.
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Tax-Advantaged Savings
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One of the benefits of a cash value life insurance policy is that it allows you to save on a tax-advantaged basis. Part of the money that you pay in premiums will go towards investments. The money that is earned as returns from the investments can be accumulated tax-deferred. The cash value can grow quicker than it could in a regular investment account because you do not have to pay taxes every year on the earnings. This provides you with cash value in addition to a death benefit on your policy.
Lack of Control
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Although putting your money into this type of insurance can provide you with a cash value, you do not get to have much control over what happens to your money. With whole life insurance, you leave the investing up to the insurance company. If you choose universal or variable life insurance, you can choose the investments, but you have very few investment options to choose from. If you are the type of investor who likes to branch out and have choices, this is not the product for you.
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Costs
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One of the drawbacks of getting cash value life insurance is that it costs more than term insurance. You are not simply paying for a death benefit as you would with term insurance. You have to pay administrative costs for the investment component of your policy, which adds to the total price. You may be better off to invest the difference between the two policies on your own. The pricing structure of whole life insurance can be confusing because you do not know where your money is going.
When to Use
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While cash value life insurance is not for everyone, there are some situations when it can be beneficial. For instance, if you are older, you may not be able to qualify for term life insurance. Whole life insurance can still be purchased at a reasonable price. You may also want to use this type of insurance if the idea of forced savings is appealing. You simply pay your bill when it comes instead of trying to make yourself contribute to a retirement account. This way, when you reach retirement, you will lease to have something built up.
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