What Is the Cash Value of Life Insurance - A Quick Review?Posted by Tange Feldman on February 19th, 2021 What is the cash value of life insurance? If you are planning to purchase insurance, you need to know how much a policy will cost you and how it will be worth when you die. One type of insurance that is very liquid and is gaining in popularity is term life insurance. Term life insurance does not accrue interest, and the death benefit never decreases. The cash value of life insurance is the amount that the policy owner receives upon the death of the insured. The cash value is equal to the difference between the premiums and the death benefit. The death benefit is usually lower than the premiums because most policies are not paid out until a certain age. Also, if you choose to pay your premiums early, you can build a cash value that will be higher than the value you have in your policy when you die. How do you determine the value of a policy? Generally speaking, when a policy is first purchased, it is based on current age and height and weight statistics for the people insured. If these factors are within the policy owner's ideal range, then it is considered a fair value. Policy premiums are then charged on this amount, and this is how the insurance company makes their profit. When an individual purchases a policy, they receive the death benefit plus the cash value at the time of purchase. Why is the cash value important? Cash is important because it is the method by which the insurance company makes their profit. cheapest insurance in utah make their money by collecting premiums and paying death benefits to the beneficiaries. If there were no cash value, then there would be no profit made! How long do you need to live in order to purchase a life insurance policy? Most people start receiving life insurance around the age of twenty-five, but you don't have to wait that long in order to get one of these policies. If you are young, then your premium and death benefit will not accrue much interest. How long do you want to be able to receive payments on your life insurance policy? Usually, the longer you can make payments, the more you will pay in the end. This is due to the fact that life insurance premiums keep growing with age. The longer you can make payments on your policy, the higher your premiums will eventually become. Therefore, if you purchase a policy that has a lower initial premium and you plan on staying younger for a longer period of time, you can expect to pay much less money than someone who chooses a policy with a shorter payment term. Do you need to take a loan out in order to purchase a policy? Not necessarily! If you are shopping around for life insurance because you are certain that you do not want to rely on your inheritance to support your family after your death, then you should consider obtaining cash value insurance instead. Unlike fixed insurance policies, the cash value of a life insurance policy continues to increase as you pay premiums, which makes it a good financial investment that does not require a loan. There are many factors that go into determining how much a policy will cost you. The above factors are just a few of the many that you will have to consider when purchasing a life insurance policy. The best way to learn more about the specifics of each policy is to speak to an agent who can answer all of your questions. In the end, you will be happy that you took the time to learn more about what is the cash value of life insurance and how it will affect your future costs.Like it? Share it! |