Because of the increased benefits
offered by cash-value life insurance policies their premiums are usually higher
than those of term policies. Cash-value
policies offer the ability to use a portion of the policy similarly to a
savings account. This is the reason you do not want them to be a lost life
insurance policy. You may borrow against
it, invest part of it or even withdraw a portion to meet your current
needs. Premiums begin at a higher rate
than those of term policies. The increased initial rate accounts for the
cost of purchasing the savings component of the policy. The overall cost of cash-value policies
versus term policies usually equalizes over time if the policy is purchased
when you are young and health and kept active through your middle years. You may even discover that your premium rate
is lower than an equally value term policy would afford.
Cash-value
policies are established by placing a share of each premium into what is
basically a savings account. This value
of the account grows as more premiums are paid and reflects the cash-value of
the policy. Depending on your insurer
and the details of the policy the account could increase at a fixed rate, a
flexible rate or be dependent on the insurers’ rate of return on secure
investments. Policies vary on how you
may use this cash value. Most policies
will allow you to borrow against it using it as collateral. You may often be allowed to use the cash
value toward your premiums. You can also
simply withdraw a portion of the money for immediate needs. You must be aware that the withdrawal of the
entire cash value will terminate your coverage.
When establishing your policy you
should clarify what your beneficiaries will be entitled too. Some policies disburse only a death benefit
others may include part or all of the cash value. Depending on the benefits allowed to those
you name your premium rates may be affects.
Cash-value policies grow over
time and it will be several years before there is a significant available
balance. When considering a withdrawal
you need to double check your policy terms to make sure you are not going to
accrue a surrender charge for accessing the account prematurely. You should also be aware of any tax penalties
you will be responsible for before withdrawing funds. For your policy to be cost effective it
should be in place for more than 15 years.
Cashing your policy in early will mean the loss of death benefits as
well as the premiums paid into the policy.
The cash value simply will not cover the incurred expense.
Both whole-life and
universal-life insurance policies can offer cash-value options. Whole-life policies are in place until your
death unless you cash them in or fail to meet the premiums. Premiums for whole-life policies are set in
place when the policy is established.
You will either keep the same payment or know ahead of time that the
cost will increase at an agreed upon rate.
Universal policies allow flexibility in rates and term coverage and end
at a pre-specified date.
Cash-value policies can be a
great financial move but do not establish a policy like this unless you can
foresee leaving it in place long enough to benefit from the advantages it
offers.
“TO BE THE BEST IN SERVING OUR MEMBERS BY PROVIDING PEACE OF MIND THAT THEIR BENEFICIARIES RECEIVE THEIR INHERITANCE”
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