Understanding cash value is important for determining if whole life insurance is a product a consumer needs. Cash value is a benefit that comes along with whole life insurance products. Determining if the expenses of whole life insurance outweigh the need for a cash surplus is necessary when trying to choose the right life insurance product. In addition, with whole life insurance, a consumer can protect their family through a death benefit while at the same time generating a nest egg for retirement.
What is Cash Value?
Cash value is accrued with whole life insurance products. Whole life insurance policies have a required premium and then an additional portion of the payment. The payment that is paid each time, beyond the premium, goes into an account and grows much like a savings account. These funds are the cash value on the life insurance policy. The cash value can accrue interest and it can be placed in various savings options depending on what life insurance product is purchased.
What is Whole Life Insurance?
Whole life insurance is a life insurance plan that accumulates a cash value. Because of this, whole life insurance is more expensive than other options. In addition, whole life insurance costs more because it provides coverage for the insured person’s entire life as long as the policy is paid current. Further, it eliminates the need to re-apply and prove insurability on more than one occasion.
How Does Cash Value Grow?
The cash value of the whole life policy continues to grow with each premium payment and is placed into an interest bearing account. In addition, some whole life products allow policyholder’s to determine where the money is invested, with flexibility in investment in order to earn a higher profit and overall cash value. However, those types of accounts pose a risk to possibly losing the cash value as well.
How Do I Access My Cash Value?
There are several ways an insured person can access the cash value of a life insurance policy. The cash value is the amount of money that would be returned to a policyholder if the policy were terminated or canceled. Additionally, cash value can be borrowed in the form of a loan or can be used as collateral for a loan. Another way to access the cash value is to allow the policy premium to be withdrawn from the cash value, resulting in the policyholder not having to make a premium payment.
Whole life insurance accumulates a cash value. The premium that is determined for the whole life policy includes funds that go above the required policy premium amount. Those additional funds that are paid are placed into a savings account that earns interest and continues to grow. That being said, the cash value can be placed in riskier stocks and savings options depending upon the type of whole life insurance policy.