Cash value life insurance, also known as permanent life insurance, is a type of life insurance that provides coverage for the policyholder’s entire lifetime as long as the premiums are paid. In addition to the death benefit, these policies also have a savings component called cash value, which accumulates over time and can be accessed by the policyholder through loans or withdrawals.
The cash value of a policy is created by allocating a portion of the premium payments into a savings account. The savings account earns interest, and the cash value grows over time. The policyholder can access the cash value by taking out a loan against the policy or by making a withdrawal. However, if the policyholder takes out a loan or makes a withdrawal, the death benefit will be reduced by the amount borrowed or withdrawn.
Cash value life insurance policies come in two main types: whole life insurance and universal life insurance. Whole life insurance policies have a guaranteed death benefit amount, and the premiums remain level throughout the life of the policy. Universal life insurance policies have a flexible premium structure, allowing the policyholder to adjust the premium payments and death benefit.
Cash value life insurance policies are more expensive than term life insurance policies because they include the savings component and provide coverage for the policyholder’s entire lifetime. Additionally, cash value policies can be used as an investment tool, but they also have a death benefit, which provide protection for the policyholder’s family in case of death.
It’s important to consider your needs and goals when deciding whether to purchase a cash value life insurance policy. A financial advisor or insurance agent can help you determine how much coverage you need and compare different policies and rates.
