Cash value life insurance refers to a savings component of permanent life insurance, such as whole life insurance and universal life. This life insurance policy takes some of your premium and sets it aside in an interest-bearing savings or investment account. However, you can access it before you pass away.
This insurance is the best for you, depending on the type of coverage that you require. It is worth noting that this insurance is not recommendable for people who are advanced in years because the older you are, the more likely the cost of the premium outweighs any eventual benefit.
How Does it work?
Cash-value insurance is similar to a standard permanent life insurance policy. There is a similarity because you will pay monthly premiums for a set death benefit that will be available to your beneficiaries once you pass away. But a cash value policy diverts some of your premium and places it into a savings or investment account that you can access.
How to Access the Cash Value in Your Life Insurance Policy
Do you want to access your policy? If yes, then there are several ways to take advantage of your policy’s cash value, and they include:
Pay Your Premiums with the Cash Value
Paying your premiums with the cash value is a strategy that will work just for a short period if you start while the cash value is small or if the interest is low. However, not all insurers offer this option, but with the paid-up life insurance policy, the cash value is enough for you to stop paying premiums out of pocket.
Put up Cash Value as Collateral to Borrow from your Insurer
Another way to access this policy is by putting up cash value as collateral to borrow from your insurer. The cash value of your policy can be used as collateral, and you can use the loan to buy a car, pay medical expenses, or purchase anything you want.
Sell your Policy for a Life Insurance Settlement
You might want to sell your policy for a life insurance settlement if your premiums are high and you no longer have dependents. However, some companies tend to buy term life insurance policies for cash, but only if the policyholder is old or sick and will most likely die during the policy term.
Surrender your Life Insurance Policy for its Net Cash Value
You can surrender your policy to the insurer if you cannot get a settlement and want to cash out your life insurance. This is the best thing to do; all you have to do is let your insurer know, and they will pay you the policy’s net cash value.
Can I use my Cash-value Life Insurance?
Yes, you can, and there are ways to cash in on your life insurance policy while you are still alive.
Take out a Loan
While you are still alive, you can use your cash life insurance to take out a loan. If you want to maintain coverage while accessing some of your policy’s cash value funds, all you have to do is check if it has grown enough for you to borrow against the policy.
Sell Back your Policy
By selling back your policy to the insurer, you may be able to fully cash in on your life insurance. However, if you cash in on your policy, your coverage will end, and a death benefit will not be paid when you pass away. If you need to, you can consult a financial advisor to determine your options.
FAQs
Is It a Good Investment?
Until you have reached the zenith of other investments and savings accounts, cash-value life insurance is not a good investment strategy.
Does Every Life Insurance Policy Have a Cash Value?
Not all types of life insurance have a cash value. For instance, term life insurance does not have a cash value component.
Can I take the Cash Value of my Life Insurance?
Yes, you can. You can withdraw the money or take out a loan against your cash value. You can even use the money for anything that suits you. But if you terminate the policy, you can take the cash value.
What happens When I Cancel the Policy?
If the policyholder decides to cancel or surrender the policy, the cash value you have built may be available to you. However, the amount you receive will include less outstanding interest, loans, and unpaid charges. Additionally, there might also be tax implications.