Should you buy life insurance with cash value?
iQuanti: Permanent life insurance policies are best known for providing lifetime coverage, but they also have another important component: cash value. Cash value allows you to save a portion of every premium you pay to create cash value that grows, giving you another edge down the line. Let’s take a closer look at what cash value is and the benefits of getting cash value life insurance.
What is cash value?
Cash value is a component of permanent life insurance policies. A portion of every premium you pay goes towards the policy’s death benefit and the rest goes towards the cash surrender value, which grows tax-free. Some types of permanent policies, such as whole life insurance, increase your cash value at a fixed rate. Others, like universal life, allow you to invest your cash value in the market for greater growth potential.
Once your cash value has grown enough, you can withdraw, borrow, and pay premiums with it. You can even surrender your whole life insurance policy and receive the cash value minus the surrender charge.
If you decide between term and whole life insurance, keep in mind that term life insurance policies do not offer a cash value. With term life insurance, your premium payments go only towards the death benefit.
Advantages of Life Insurance with Cash Value
Cash value life insurance offers many benefits, including:
You can build up your wealth tax-free
Your cash value increases over time, helping you build wealth alongside other savings and investments. Plus, any money that goes into your cash value is tax-deferred, meaning you don’t pay tax on it while it grows in the account. You can only owe taxes on withdrawals or redemptions to the extent that they exceed your base. This makes cash value life insurance a potential option for people who have maxed out other accounts and are looking for other tax-efficient growth options.
You can get low interest loans with no credit check
Once you’ve built up enough cash value, you can take out loans with no credit check and a low interest rate that adds to your loan balance. There are no monthly installments, which means you can repay the loan whenever you want. But keep in mind that your loan cannot exceed your remaining cash value or your policy could expire.
You can pay premiums with cash value
Many permanent life insurance policies allow you to cover some or all of your premiums with your cash value when it’s large enough. This means you may be able to keep your coverage for life without making monthly payments.
The bottom line
Permanent life insurance may have higher premiums than term life insurance, but the cash value is often worth it. You can create another source of tax-deferred wealth and tap into it whenever you need it. Plus, you can use that cash value to cover your premiums, so you can get full coverage without having to pay monthly.
That said, there are many types of cash value life insurance policies available. Do your research and understand the details of each before deciding on a policy so you can get the right coverage for your needs.