Whole Life Insurance Cash Value
A whole life insurance policy is just what it sounds like: insurance for your whole life. The other main type of life insurance is term life insurance in which the insured is insured for only the term of the policy (usually 10, 20, or 30 years) and the death benefit is paid only if the insured dies during that term.
A whole life insurance policy has a guaranteed death benefit–as long as the policy is paid up, the death benefit will be paid when the person dies, there is no expiration on the policy.
Whole life insurance also has a cash value associated with it. People with whole life policies pay much higher premiums than those with term life insurance, but in return, some of that money is set aside and grows over time.
Because of the high fees and commissions associated with a whole life policy, cash value grows very slowly at first. In fact, if you cannot commit to holding the policy for at least 20 years, you probably will not have a good investment on your hands in a whole life insurance policy.
How do I use the cash value of my whole life insurance policy?
A Loan: Once you have accumulated enough cash value in your whole life insurance, you can take out a loan against that policy. You can pay it back, plus interest, or you can keep the money; it will be deducted from the death benefit when you die.
To Cover Your Premiums: with enough cash value in your life insurance, you can stop paying the premiums and let the cash in the policy cover the payments.
Withdraw It: again, after you reach a certain level of cash value, you can withdraw all or some of the accumulated money. Depending on the exact policy you have, your death benefit may be reduced by less than, the same as, or more than the amount you withdraw!
Do I have to pay taxes on the cash value in my whole life policy?
Your cash value will grow in your whole life account tax-deferred. When you withdraw it, you are only taxed on the money you withdraw that exceeds the amount you’ve put in. If you withdraw less than you put in, you will not be taxed.
Similarly, a loan you take out against the policy can be taxed if you cancel the policy before you finish paying back the loan. Any amount loaned that is over the amount you’ve paid in will be taxed.
Is whole life insurance with cash value for me?
Look into whole life insurance very carefully before buying. Most financial experts (who are not making an excellent commission on your whole life insurance) agree this insurance is a good buy only in a few cases; most people will be better off buying term life insurance and investing separately.
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Related posts:
- Whole Life Vs Term Life Insurance
- Difference Between Term and Whole Life Insurance
- Mortgage Term Life Insurance
- Term vs Whole Life Insurance
- The Advantages of Whole Life Insurance
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