Life insurance offers a way to provide your loved ones with financial security after your death. Some types of life insurance come with an extra benefit: cash value that you can build on and draw from during your lifetime. Show
There's a catch, though. If you don't use the cash value from your life insurance before you die, the money reverts to the life insurance carrier. Due to this risk, you should carefully weigh the pros and cons of a cash value life insurance policy and how you might use it before buying one. There are two basic types of life insurance: term life and permanent life.
What can you do with your insurance policy's cash value? You may have several options, depending on your insurance policy's terms:
Of course, you can also leave the cash value to grow. Just be aware that at your death, the cash value typically returns to the insurance company, not to your heirs. What Happens to Cash Value at Death?Whole life and universal life are the two main types of permanent life insurance. While both kinds of insurance have cash value, there are some important differences between them. Whole life insurance:
Universal life insurance:
How to Access Your Cash ValueDepending on your specific insurance policy, you may be able to access your cash value in several ways.
Is Cash Value Life Insurance Worth It?Buying life insurance that builds cash value may sound like an easy way to make money. But cash value life insurance is significantly pricier than term life insurance—up to 15 times as expensive. Building up cash value takes time; borrowing or withdrawing that money could reduce your beneficiaries' death benefit or incur income taxes. Finally, the returns on cash value in a life insurance policy generally won't match those from investing in a 401(k) or IRA plan. You might be better off purchasing term life insurance and investing the money you would have spent on cash value premiums. Cash value life insurance might make sense if you've already maxed out other investment vehicles. Consulting a financial advisor can help you decide how a cash value life insurance policy might fit into your long-term financial plans. Also consider signing up for free credit monitoring from Experian. Maintaining a good credit score should be part of your strategy for a secure retirement. What happens if I surrender my whole life insurance policy?Surrendering a whole life insurance policy means you are cancelling the policy. Instead of your beneficiaries receiving the death benefit, you as the policyholder will receive the cash value your whole life insurance policy has built up over time.
How much will I receive if I surrender my life insurance policy?Guaranteed Surrender Value is available after three years of holding the life insurance policy. This value is usually around 30% of the premiums you have paid, not including the first year.
When a whole life policy lapses or is surrendered prior to maturity the cash value can be used to?When a whole life policy lapses or is surrendered prior to maturity, the cash value can be used by the insurer as a single premium to purchase a completely paid up permanent policy that has a reduced face amount from that of the former policy.
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