Cash value life insurance is different than most policies so it is important to understand how it works and why it may be beneficial for you. First you should know that there are two main types of life insurance- term life and whole life. Term life insurance is temporary insurance that will last for a certain amount of time, or term. Whole life is permanent insurance that builds cash value.
How does whole life insurance build cash value?
Whole life insurance will last for your entire lifetime, as long as you continue to pay your premiums. The fixed premiums are higher than a term life policy and that’s because a portion of your premiums are invested by the carrier. You can look at it as a built in savings element or, as some people refer to it, “forced savings.”As you pay your premiums, your policy will build cash value. This cash value is tax deferred until you decide to withdraw or borrow against it. If you die, your beneficiaries receive the death benefit, which is the face amount of the policy.
What if I borrow from cash value life insurance?
If you withdraw your cash value without surrendering the policy, then you are essentially borrowing against your life insurance policy. The carrier will charge you a specified interest rate until the money is returned to the policy. Any money that is owed at the time of the insured’s death is subtracted from the death benefit.
Cash value life insurance pros and cons
Cash value life insurance has advantages and disadvantages. One advantage is that the premiums are level for life. A whole life policy also has the ability to build cash value, tax-deferred. A disadvantage is that it costs much more than term life insurance. You should weigh the pros and cons of whole life insurance for your particular situation. Be sure to speak with an experienced agent to determine which type of life insurance is best for you. Get some free quotes for term life and cash value life insurance to compare the difference in cost.