People who have a life insurance policy might find the cash value to be a useful tool. This is because it can be used as collateral for loans, to assist with premium payments, or even for cash withdrawals. However, because the cash value component of your life insurance policy can get highly complex, speak with your insurance provider or a financial professional to fully understand how it works for your specific policy. So, what exactly is the high cash value of a life insurance policy? Most importantly, how do you get the various types of best policy? Is it worthwhile to make the effort? We’ll help you cut through the confusion and get the answers you’re looking for.
What is a cash-value life insurance policy?
High cash value life insurance policies build over time and can be accessed while you are still living. You can use this money to support your retirement, pay your life insurance premiums, or boost the death benefit of your policy to leave more money to your children. It can also provide certain tax benefits when withdrawing and provide an affordable option to borrow money; however, these uses can lower the amount of money the beneficiaries of your death benefit receive.
Types Cash Value Life Insurance Policy
If you want to add a cash value account to your life insurance, you might be curious about the different types of policies you can pick from. There are a few different types of life insurance that offer cash value life insurance. With term life insurance, which is only offered for a certain amount of time, cash value accounts are not available
Types Cash Value Life Insurance Policy: In Details
No matter what kind of life insurance you choose, each type of cash value account is a little different. Find out what makes them different so you can make the best choice for you.
#1. Whole Life
Whole life insurance is also known as “straight life” or “ordinary life.” It covers you for the rest of your life. The rate stays the same as you age because it is based on your age when you buy the policy. This means young people who buy it will pay the least because they’ll be contributing for a longer time. Every year, the company sets a fixed interest rate that makes your cash value grow. Here, you only have to pay premiums for a certain amount of time with some whole life plans, like 15 years or until you turn 65.
#2. Universal Life Insurance
The term “accessible life insurance” is also used. It has a part for savings (cash value) that grows tax-deferred. The insurance company invests some of your payments. Then, the return on your investment is added to your insurance without being taxed right away. The insurer promises a specific minimum return on your money when you purchase Universal Life Insurance, which has a guaranteed minimum interest rate. The interest rate return on the cash value grows if the insurance company does well with its investments. This means that the insurance will stay in effect until it matures, as long as you pay the minimum premium
#3. Variable Life Insurance
Variable life insurance is a type of fixed life insurance that includes an investment part. However, the cash value and death reward are not the same. The company puts your cash values into different investment accounts that hold stocks, bonds, and other investments. Like mutual funds, these separate accounts let you save money. So, you need to obtain information from the company about each account. This is sometimes called a prospectus. As the policy owner, you pick which different accounts to use to put the cash value to work. The cash values and death benefits change because the values of the different accounts go up and down.
How to Get a Cash Value Life Insurance Policy
There are times when life insurance can help your finances, like when you have a family that depends on your income. This is to say that with this policy, if you die suddenly, life insurance will make sure that your family can pay for everything they need, from the monthly payment to the groceries to your child’s college tuition.
How to Get a Cash Value Life Insurance Policy: Steps
As the policyholder, you have five options for getting and accessing the high cash value of your life insurance policy.
#1. The Death Benefit Should Be Increased
If your permanent life insurance policy has built up a lot of cash value over the years and you don’t plan to use it, you might want to give your family a bigger death benefit. How are you able to do that? In most cases, it’s very easy. To make a trade, all you have to do is call your life insurance business and say you’d like to raise the death benefit in exchange for the cash value on your policy. Most likely, the company will agree to what you want because it doesn’t want to lose your business.
If you have enough cash value, you can use it to pay your premiums. We call this “paid up.” Asking them to do this is all it takes for most life insurance companies to make it happen. You could also save at least $2,000 a year on your insurance if you do this.
#3. Take Out a Loan
You can also decide to take out a loan against your insurance if it has a significant cash value. Most of the time, life insurance companies offer these cash-value loans with lower interest rates than a bank loan. This means you don’t have to pay back the loan since it’s your own money that you asked for. It’s important to remember, though, that any money you borrow, along with interest, will be taken out of your death benefit.
#4. Make a withdrawalÂ
You can take out some or all of your cash value if you need cash quickly or just want to make a big buy. This kind of withdrawal could lower your death benefit or even wipe it out, depending on your insurance and the amount of cash value. When you take money out of some policies, the death benefit goes down by the same amount as the withdrawal. With others, like some standard whole life policies, the death benefit goes down by more than the amount you take out. Talk to your insurance agent about this plan before you make any quick moves.
#5. Grow Your Nest Egg
In the past few years, cash-value life insurance plans have become very popular among investors who want to add to their retirement income. If you have a lot of cash saved up, you can use it as an asset in your retirement account in several ways. These funds often grow tax-free for a long time, which helps with your retirement savings. To get cash value for retirement, most experts say policyholders should wait at least 10 to 15 years before taking it out. So, talk to your financial or life insurance agent about whether this strategy will work for you.
# 6: Full Giving Up
Of course, you can always give up your insurance and get the cash value that has built up. There are a lot of things to think about before going on this path. When you surrender a life insurance policy, you first give up the death benefit. This means that when you die, your beneficiaries will not get any money from the policy. Most of the time, you’ll also have to pay surrender fees, which could make your cash worth much lower.
Additionally, you will have to pay income tax on the cash you receive from the return. You might have to pay even more taxes if you still owe money on a loan that you took out against the policy. Also, don’t let the cash value in a permanent life insurance contract accumulate before you figure out how to use it.
Best Cash Value Life Insurance Policy
For many people, life insurance is an important part of their budget. If you die suddenly, it can help your family cover costs or settle your debts. Hence, being sure of your finances can help you leave a financial legacy after you die. However, life insurance can be hard to understand. There are different types of cash value life insurance policy, and it’s important to get the right one for your needs.
Best Cash Value Life Insurance Policy: Examples
To help you, we carefully chose and compared dozens of the best types of cash value life insurance policy companies to help you find the best coverage for your needs and situation. We ranked them based on things like how easy they are to use online, how satisfied customers are with their service according to JD Power’s Individual Life Insurance Study, and whether or not you have to take an exam.
#1. Northwestern Mutual
It has been around for more than 160 years and, according to the National Association of Insurance Commissioners (NAIC), is now the biggest life insurance company in the U.S. It stands out because AM Best gave it a higher rating, which shows how healthy the company’s finances are and how likely it is that it will continue to pay its bills and claims. They have multiple ways to pay for Northwestern Mutual’s whole life insurance coverage. You can commit to paying fees for 10, 15, 20, or 25 years, or until you turn 65 or 100. In addition, you may be able to combine your policy with term life insurance to lower your payments while still getting permanent coverage.
#2. State Farm
The standard whole life policy from State Farm offers consistent premiums, so the amount you pay each month will never change. However, a single premium or restricted payment policy is available if you want more flexibility in terms of when and how much you pay. Also, your application for a State Farm policy may be expedited and a medical exam skipped if you are healthy, between the ages of 18 and 50, and the policy value is between $100,000 and $1,000,000. The insurer provides a final expense policy to anyone between the ages of 50 and 80 (50 and 75 in New York) who wants to cover their own funeral, burial, and end-of-life costs. State Farm leads J.D. Power’s list of life insurers with the best customer satisfaction
#3. Guardian
Guardian offers whole life insurance with options for level premiums or “limited payment” policies that can be paid off in 10, 15, or 20 years. After that time, you won’t have to pay anything to keep your insurance in effect. Disability premium release riders, long-term care riders, and index participation feature (IPF) riders are just a few of the available options. The company also provides life insurance for those who are HIV-positive. These term and whole-life policies require proof that you are under the care of a specialist and are responding well to antiretroviral medication. Guardian shines with a top-tier A++ rating from AM Best for financial strength
#4. MassMutual
When looking for whole life insurance, MassMutual is the best company to go with. You can change your coverage with different “riders” depending on your policy. The yearly term purchase rider lets you put your dividend payments toward a term life insurance policy. The long-term care rider and the chronic sickness rider are some of these. This means that should the insurance company make a profit, you, as a lifelong policyholder, can get dividends. The insurance company MassMutual thinks it will give its permanent members nearly $1.9 billion in 2023.
#5. New York Life
The custom whole life coverage from New York Life gives you options for how to pay your premiums. You can choose to pay off your insurance in the first few years, or you can choose when and how much to pay each month. The company also provides different types of cash value life insurance policy riders, such as a chronic care rider, a waiver of payment rider, and an accelerated death benefit rider. As a mutual company, New York Life gave its members $2 billion in dividends in 2023.
How soon can I borrow from my life insurance policy?
It often takes five to 10 years to accumulate enough cash value to borrow against your life insurance policy.
Do you have to pay back loans on life insurance?
You don’t have to repay an insurance policy loan, but if you don’t pay it back, you could owe taxes or face a lowered death benefit.
What disqualifies a life insurance payout?
Instances of lying, criminal activity, or dangerous behavior that’s not disclosed upfront could all be reasons life insurance won’t pay out.
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