Life Insurance Cash Value
For people who are wavering between the kinds of coverage to get when investing in an insurance product, it helps to understand where the products differ, and what they can provide for the insured consumer.
One of the significant factors that can greatly influence the decision of a consumer to go with an insurance product is life insurance cash value.
But what is life insurance cash value? What does it offer to the policy owners?
When a person decides to invest in an insurance, he has two alternatives: term or permanent life insurance. Aside from the coverage period that the plans provide, another point that a consumer can consider is the additional benefit provided by investing in permanent life plans – monetary value.
One additional feature that contributes to the appeal of insurance plans is the potential cash benefit that a consumer can get from it as part of financial security in the future. For many policyholders, being protected from accidents and deaths is not the only consideration. More and more consumers are approaching getting insurance from a business point of view.
When you provide regular premiums for a service, a business person will automatically assume that the payments will, in one way or another, provide a good return. The same is true for more policyholders. Because people are providing top dollar for insurance, they assume that they get maximum returns for their investments.
This includes the life insurance cash value that accompanies permanent life insurance plans. Because permanent life plans relatively command higher premium payments than term plans, which only cover you for specific periods during your lifetime, the former expect the cash value return to be competitive.
Life insurance cash value is powered by a portion of the insurance premium. This value accumulates over time and is tax-deferred. Cash value is one of the reasons that the amount of premiums for insurance plans are higher than other coverage plans. But is the additional feature really that financially lucrative for the policyholders?
At the start, the growth of cash value is slow, but with the passing years, this growth speeds up, resulting to greater interest for the investor-partner, the insured. The growth of your cash value will largely depend on the type of investments that you have authorized the insurance company to make on behalf of your money. A steady growth of cash value is also possible. But if you happen to like taking risks, then you can opt to have your money invested in markets that have potential high yields yet may carry higher financial risks. Either way, your monetary value is guaranteed by the insurance company.
An important thing that you must consider is that a life insurance cash value can only be used by you as the insured person yourself. When you die, your beneficiaries will receive only the death benefit. If you wish to make a wise investment, you must keep this piece of information at the forefront of your mind at all times.
Life insurance cash value is something that you can actually use to pay for the remaining amount of the insurance premiums. On the other hand, you can also choose to withdraw a portion of the “earned” cash value to use for some other purpose, but you will continue to pay the premium to keep the insurance policy active.
Another use of the life insurance cash value is as collateral for possible loans that they will be taking out. This alternative ensures that the loan is provided with lower interest by the creditor than other loans. The reason for this leeway is that even without the insured paying off his debt, he is guaranteed a payment. When the insured dies, a portion of his death benefit is collected as payment for the loan and the interest it has generated over time; only after this deduction will the beneficiaries collect on the benefit.
If you are the insured person, you would not wish this financial inconvenience on the loved ones you shall leave behind, which is the driving reason for you to pay up your debts – leaving your death benefit intact. Thus, your creditor is in a win-win situation.
These are all the potential uses that a life insurance cash value can provide for you. These are also the same things that you must consider if you are weighing your options on which category of life insurance you must invest in. Before diving in to make an investment, make sure that you have considered all the financial angles and your situation. After all, in choices like this, there must be minimal if not zero room for errors.