What is Cash Value Life Insurnace Policy?
There are all sorts of types of life insurance policies. What a lot of people don't realize is that sometimes it's not just a matter of paying in - you can actually get money out.
How Does That Work?
Cash value life insurance- what it holds for you in its store? Before jumping to that let’s check what a life insurance does. A life insurance policy can be used in two ways: during the time of policy holder’s death and also when he/she is alive. With the latter incentive, the policy holder can withdraw cash from the policy itself and later use that cash to make investments that are non-taxable and or distribute money to your family members; restructuring homes or just do any work which requires some cash.
Whole life insurance, Universal & Variable life plans are some of the names of insurance policies that are able to produce cash.
Having bought a whole life plan, you certainly won’t be regretting because of the strong cash value that has developed as a result over the years.
How Do You Get the Cash?
How to obtain cash value life insurance or surrender value? There are a number of ways to getting cash from an insurance policy. For example: you can withdraw money from the policy itself, ask for a loan (low-interest) against the policy or let the policy lapse (not an intelligent idea) or you may sell that policy. Again, not a great idea!
It is always better to think about premiums before you give your nod to cash value life insurance policy. You might find yourself entangled between taxes and it may affect your consideration for partner benefits. It may also be noted that if you choose to have this cash value insurance policy for a greater interval, you might receive a good return than drawing the money out.
Consider the Components
Permanent life insurance policy has face value and cash value. It means the insurance amount will go to the beneficiaries after death of insurance holder. When you possess a universal life or whole life plan, your insurance company adds interest on annual basis to your account. When you surrender that insurance policy, you receive balance in the account without any loans that have been taken against the policy and also without any premiums which the account holder has not been able to pay. It is not a suitable option.
Other Ways to Get Cash
If you carry the cash value life insurance policy for a longer time, you can get access to money withdrawal, which directs towards to the amount that your cash value account holds and means that you have paid your premiums excluding taxes. You also get the privilege to ask for a loan against the cash value policy in case of urgent money requirement. The benefit is that you lose worrying for credit checks. However, if you don't pay back the loan, it will be deducted from your death benefit.
Keep in mind that when you take out a loan, that's not actually a withdrawal from your account. The insurance company is lending you money, and they're using your cash value life insurance policy as collateral. So unless you pay the interest out of your own pocket, it will be added to the balance of your loan. And if you let your cash value life insurance policy lapse, you'll owe the amount of the loan, the interest on it, and taxes on the cash you took out. So if you're thinking about this type of loan, tread carefully.
The Final Word
If you're thinking about trying to raise cash by borrowing against your cash value life insurance policy, make sure that you consider your options carefully. It might seem like an easy fix, but it may not come without perils.