What is a Cash Value Life Insurance Policy?
Whole life insurance offers a death benefit that is paid out to your surviving beneficiaries after you die. It also gives cash value which you are able to access immediately after having the coverage for many years. A whole life cash value is different from a standard life policy in that the cash value is credited directly to the account instead of the accumulation of a reserve fund. The benefit is usually equal to a percentage of your death benefits and it accumulates tax-deferred until it is depleted.
This type of life insurance policy allows the premium to be adjusted each year for inflation, and the death benefit can either be a fixed amount or an indexed amount, both of which are based on an appraisal of your current life expectancy. Adjustable premiums are designed to offer you more protection and control over your future finances. Most insurance companies allow for immediate withdrawal of cash value life insurance proceeds upon retirement. However, before taking this action the insurance company will first report your death benefit and balance to the Internal Revenue Service for purposes of federal income tax calculation and annuity distribution.
Permanent life insurance policies are much like whole life insurances, but they are granted permanently. A permanent life insurance policy is designed to ensure that there will always be money for your loved ones upon your death. These policies are rarely modified. Your premium, the face amount, the number of years and the cash value remain unchanged. As a result, permanent cash value life insurance policies are typically more expensive than non-permanent policies. Visit https://paradigmlife.net/blog/is-cash-value-life-insurance-worth-it/ for more info.
Cash value life insurance policies also have two kinds of withdrawals: tax-free and taxable. Tax-free withdrawals are made without paying any taxes on them. They are also called "cash payments" by the insurance provider. Taxable withdrawals are paid when the insured party dies during the policy period. The cash value is invested by the insurer and not released unless the death benefit is fully repaid. If the insured party makes non-taxable withdrawals during the policy period, the insurer has to refund the entire face value of the premium paid plus the deductible that was paid.
Some insurance companies allow their customers to choose between regular insurance and cash value life insurance. Regular insurance premiums are paid monthly on an installment basis. Once the month's premium has been collected, the death benefit remains untouched until the next month's premiums are paid. In such cases, the insurer pays the death benefit automatically. Such policies may be less expensive than life coverage purchased directly from the insurance company, but the premiums are higher.
There are some situations where a cash value life insurance policy may not be a good idea. For example, in the case of those who are very young and healthy. It is not advisable to purchase cash value life insurance policies for young people. Instead, they should purchase term life insurance. Check out https://paradigmlife.net/blog/is-cash-value-life-insurance-worth-it/ to know more.
Find out more about life insurance at https://en.wikipedia.org/wiki/Life_insurance.