Cash Value Life Insurance

 Planning for the future is critical in a world of uncertainty. Now what if there was a life insurance policy that provided more than just the death benefit? What if it could help you meet your financial goals during your lifetime and help you set up your family for success after you pass? Well, let’s take a look at how cash value life insurance does just that. 

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What Is Cash Value Life Insurance?

Cash value life insurance is a form of permanent life insurance that builds equity, making life insurance useful not just for the death benefit but also for financial goals in your lifetime. The equity built up is considered cash value or surrender value and you can access it by taking out a policy loan or making a cash withdrawal. 

How Does a Cash Value Life Insurance Policy Work?

When you set up a universal life or whole life insurance policy, you agree to monthly or annual premiums. In whole life insurance the premium payment is used to purchase base insurance coverage and paid up insurance. Paid up insurance is what creates cash value. In universal life the premium is deposited into an account and then distributed to pay for the renewable term insurance and policy fees. Whatever is left over in this account is called accumulated cash value. Cash value works differently in universal life vs whole life insurance. Cash value in a universal life policy is money that is left over after paying the premium and fees of the policy. Depending on the type of universal life policy, this money can then be invested, mirror an index or earn interest based on a fund. Cash value in a whole life insurance policy is like equity in a home. It grows at a guaranteed rate, and can increase as dividends are earned if they are used to purchase paid up insurance.

Unlike a policy’s death benefit that pays out to the beneficiary upon the policyholder’s death, the cash value life insurance is available while they are still alive. Policyholders can access this cash at any time, and enjoy the many advantages and opportunities this provides. 

Types of Cash Value Life Insurance Policies

The growth rate of the insurance policy’s cash value depends largely on the type of permanent life insurance policy owned. At McFie Insurancewe recommend Whole Life Insurance out of these options. 

Whole Life Insurance 

Also known as “ordinary life,” whole life insurance is most standard, with a fixed rate of return and guaranteed premiums, death benefit, and cash value. It also remains in force for the entirety of the insured’s lifetime.

Universal Life Insurance (UL)

UL insurance allows adjustment of premiums and coverage amount, similar to the cheaper rates of term life insurance. The cash value component links the accrued growth to stocks and bonds investments making your cash value growth more risky.

Indexed Universal Life Insurance (IUL)

Indexed universal life insurance offers a flexible premium and cash value investment opportunities to the policyholder. However, to accommodate this flexibility there are required fees that can greatly offset the market gains from any investments. 

Variable Life and Variable Universal Life Insurance (VUL)

Variable universal life insurance allows the cash value to be invested in a wide variety of accounts, such as mutual funds, stocks, and bonds. Be cautious; the cash value has the potential of plummeting with these markets, and isn’t as liquid as a standard cash account.

Advantages and Disadvantages of Cash Value Life Insurance

What sets cash value life insurance apart from others, like term life insurance, is the unlimited access to the tax deferred, cash value savings component. Policyholders can access these funds by: cash withdrawals, funding premium payments, and taking out loans against the cash amount. No other insurance plans include this feature.

Policyholder’s are not obligated to repay any outstanding loans or withdrawals. If upon their passing there is an outstanding loan balance, it will be forgiven and deducted from the beneficiaries’ payout. Understanding how to leverage cash value can be very beneficial.

Is Cash Value Life Insurance Right For You?

Cash value life insurance is a beneficial route to member flexibility and access to cash value. With McFie Insuranceexperts by your side, we can customize the perfect life insurance policy for you. 

Cash value life insurance is used in infinite banking. Check out our ebook for more about how infinite banking can prepare you for retirement, along with providing the typical benefits of life insurance.

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