BEST SELLER Life Insurance with Cash Value
BEST SELLER Life Insurance with Cash Value
Life insurance provides individuals with peace of mind knowing each of their loved ones are protected.
Without a life insurance policy, you leave your loved ones’ futures up to chance.
A life insurance policy will ensure that your final wishes are carried through and that each beneficiary is able to continue their current standard of living.
Advantages of Life Insurance
Having the right life insurance is essential to planning for your present and your future.
Not only can life insurance provide assurance for your family after you are gone, many life insurance options offer other benefits and investment opportunities you can take advantage of while you are living.
Life Insurance Death Benefit – When you pass away, your life insurance provides income (tax-free) to your named beneficiary or beneficiaries that can be used to pay funeral expenses, debt, tuition, estate taxes, or virtually any financial need. Your policy can help provide security for your business as well, by enabling partners to buy out the interests of a deceased partner and prevent a forced liquidation.
Living Benefits – The cash value growth of a permanent (whole) life insurance policy is tax-deferred, meaning you do not pay taxes on the growth of cash value, unless money is withdrawn. Loans or withdrawals can be taken against the cash value of a permanent life insurance policy to help with expenses, such as college tuition or the down payment on a home.
Cash value life insurance is a type of life insurance policy designed with a separate investment feature within the policy itself.
With these policies, you have the benefit of the life insurance your famwhat is life insurance with cash valueily will need if anything were to happen to you, but in addition to the death benefit, a portion of the premium you pay is automatically put towards a cash value account.
This account can even accumulate interest over time providing you with a safe, long-term savings channel that does not decrease in value.
A cash value account is separate from a death benefit, so it will not affect the amount your loved ones, or listed beneficiaries, would receive should you passed away.
The value of this account is not tied to any underlying asset, but rather in the general account of the insurance company, so should you pass away, the cash value remaining in your policy would be kept by the insuring company. Your beneficiaries would not receive any amount of the cash value.
A cash value account is typically available with some common types of life insurance policies including whole life insurance, universal life insurance, indexed universal life insurance, and variable life insurance.
With each type of policy, the cash value would grow in a different manner.
Term life insurance policies do not provide a cash value option.
Since cash value life insurance, also known as permanent life insurance, comes in many product varieties, people often get confused.
Whole life, variable life, universal life, and variable universal life are among the most common cash value life insurance products found in today’s marketplace.
All of these policies operate in much the same fashion.
For the purposes of this discussion, where they differ is in how the cash value is invested.
How Does of the Cash Value of Life Insurance work?
We’ve already said that a portion of every premium payment goes toward your policy’s cash value.
So, it’s easy to understand that the cash value of a policy will grow as additional premiums are made.
The cash value of a policy may also grow because of earnings.
Whole life policies offer “guaranteed” cash value accounts that increase based on a formula determined by the insurance company. (Guarantees are subject to the claims-paying ability of the insurer.) Universal life policies offer cash value accounts that track current interest rates.
Variable life policies allow their owners to invest in accounts that operate like mutual funds, meaning that their cash value accounts can be invested in bond, stock, and other funds, known as subaccounts.
The cash value will grow or decline based on the performance of the underlying subaccounts.
THE AMOUNT OF YOUR PREMIUM THAT GOES TOWARD CASH VALUE DECREASES OVER TIME
Over time, the amount that you contribute from each premium toward cash value decreases, because the cost of insuring you increases every year.
The pattern is similar to what happens with a mortgage. In the early years of a home loan, you pay mostly interest; in the later years, you pay mostly principal.
Let’s take a very simplified example and assume you’re paying a $25-per-month premium for cash value insurance.
In the early years of the policy, it costs relatively little to insure you–say $5 a month–because your odds of dying prematurely are low. In the later years of the policy, the cost to insure you is much greater–say $20 a month–because the insurance company knows that the odds are much greater that you will die as you grow older.
The cash value part of your premium behaves just the opposite of the insurance component.
In the early years of the policy, your cash value can grow quickly since more of your premium is available for cash value.
In the later years, the cost of insurance consumes more of your premium, so less is left over for cash value.
How Does of the Cash Value of Life Insurance work?
You probably understand that, as you grow older, the cost of insuring your life gets more expensive.
That’s why a term insurance policy will generally cost you a great deal more at age 50 than at age 30.
With cash value insurance, the insurance company looks ahead and factors in the increasing costs of insuring you as you grow older.
The insurance company calculates a premium amount that will cover the anticipated increase in insuring your life.
Cash value plays a central role in this calculation.
As the cash value of your policy grows, the amount that the insurance company needs to pay out as a pure death benefit decreases.
That’s because part of the policy payout upon your death comes from the cash value of the policy.
The larger the cash value, the greater the percentage of the policy that can come from the cash value.I
n effect, to avoid increasing premiums as you get older, you’re setting aside funds now to make up the difference.
Example of Life Insurance with Cash Value
Although grossly oversimplified, cash value works something like this:
Assume that a policy will pay $1 million upon your death.
You make monthly premium payments, and each month a portion of your premium is applied to the cash value of the policy.
After 30 years, the cash value of the policy is equal to $500,000. Since the policy will pay $1 million upon your death, and the policy already has a cash value of $500,000, the insurance cost needs to cover only the remaining $500,000.
Ten years later, the cash value is equal to $750,000.
Because you’re 40 years older than you were when you bought the policy, the pure insurance cost of insuring your life is significantly higher now.
However, because of the cash value, your policy is really insuring only $250,000. The rest of your policy’s payout will come from cash value.
Note: Variable life insurance policies are offered by prospectus, which you can obtain from your financial professional or the insurance company issuing the policy. The prospectus contains detailed information about investment objectives, risks, charges, and expenses.
You should read the prospectus and consider this information carefully before purchasing a variable life insurance policy.
What are The Benefits of Life Insurance with Cash Value?how does life insurance with cash valueIt provides lifelong death benefit
- You don’t have to pay premiums for your entire life. You can finish premium payments in as little as few years without losing any tax advantages
- Cash values inside the policy grow tax-deferred (NO 1099 form EVERY YEAR – as you get from your Bank)
- You can take out cash value any time tax-free through a cost basis withdrawal and/or loan distribution strategy
- Your cash value is protected from litigation and lawsuits
- Cash value is invisible inside your whole life plan for financial aid applications for college
- With a “Waiver of Premium” rider your premium will be waived up to you reach age 65 if you become totally disabled
- NO STOCK MARKET INVESTMENT RISK in whole life plan
- Very attractive NET Rate of Return compared to bank, bonds or fixed income securities or stock market returns
- No limitations on contributions when you compared to a Roth IRA and Roth 401K
- Whole Life is the only policy that provides THREE guarantees – Guarantee of cash value, Guarantee of premium will not increase and a Guarantee of original death benefits will not decrease. No other kind of policy provides these three guarantees.
How much life insurance with cash value do you need?
This formula will give you a general idea of how much coverage you need.
- Determine your annual gross income, which is the total amount you make each year before Uncle Sam and your employer take money out for taxes, unemployment insurance, health care coverage and anything else.
- Multiply that number by six. The number you get is the minimum recommended coverage for your family. For example, if you make $50,000 a year before taxes and other deductions, you should have $300,000 ($50,000 x 6) in life insurance coverage. (Multiply by eight if you want the ideal recommended coverage.)
How to learn more about life insurance with Cash Value
Life insurance with Cash Value may seem complicated, but it’s not that hard once you know the basics.
Of course, we are happy to help.
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