Cash value life insurance is an ideal type of permanent life policy that features a cash value account component. The policyholder may use the cash value to pay premiums or for other purposes, like a source of funds to repay current policy premiums or for making repairs to the policy. Unlike term life coverage, cash value life insurance does not expire until a certain number of years have passed. Compared with other forms of life coverage, cash value policies are less expensive and tend to be less controversial.
The key advantage of cash value life insurance over other types is that the policyholder retains more of the death benefit if the policy holder passes before the maturity date of the policy. The death benefit is paid directly to the beneficiary, typically a spouse. Most policies provide for specified beneficiaries that are designated by the policyholder, while some allow for selected family members to receive payments as well. Policyholders have the option to borrow against the cash value life insurance policy, which can be done in different ways. The borrow can be done through borrowing from the policy, obtaining another policy, or through some type of investment fund.
One aspect of cash value life insurance involves the risk of surrender. When the insured owner of the policy dies, the policy will surrender to the insurance company. Premiums are generally not refundable, so policyholders must rely on their premiums to pay the premiums and make the payment if the policyholder dies. Once the policy surrender, the policy expires, and the policyholder is responsible for paying all premiums and charges. The cash value of the policy does not grow as the insured owner would, so surrendering can be a hassle. Another drawback to cash value policies is that premiums can increase over time, even if the death benefit never increases.
A second aspect of cash value life insurance deals with the growth of the death benefit amount. When the insured owner of the policy reaches a certain age, the insurance company allows the death benefit amount to increase. If the insured continues to work until the retirement age, the insurance company allows an increase in the death benefit amount. The insured may also choose to withdraw from the policy, but will receive a penalty fee if the withdrawal is made before the stated retirement age. Some term life policies offer flexibility regarding growth of the death benefit, but it is important to consult with an experienced advisor to understand how the terms of the policy will affect the investment strategy. Find out more at https://paradigmlife.net/blog/is-cash-value-life-insurance-worth-it/.
In addition to the growth of premiums and death benefits, some cash value life insurance contracts feature inflation protection. As more of the cost of living increases, the policyholder pays more in premiums. When the cost of living increases, so too do the premiums on a cash value policy. When the insured borrows from the policy, the policyholder must pay a penalty fee to the insurance company. Therefore, if the policyholder does not borrow enough from the policy, he may actually have to give up some of the cash value of his policy.
As a final aspect of cash value life insurance, the policyholder has the ability to choose between a Term-certain and a Term-non-certain policy. With a term-certain policy, the benefit is granted based on the face value of the policy. With a term-non-specific policy, the benefit is granted only if the policyholder elects to surrender a specific portion of the face value of the policy and then surrender that portion to the insurance company before the policy expires. You get to decide the best option for you so get started now!
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