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Buying Life Insurance With Cash Value

Whether you’re looking for the affordability of term life insurance or the flexibility and cash value of permanent policies, we have options to fit your needs and budget. For more information, click the Visit Website to proceed.

Your rates can change during underwriting, the process by which the insurer evaluates your health, family medical history, driving record, and more to set final premiums.

Term life is the simplest, purest form of life insurance. You pay a premium for a set amount of time — typically from 10 to 30 years – and if you die during that period, your family receives the death benefit. Term life is usually less expensive than other types of pure life insurance, such as whole life or universal life policies, which have a cash value component.

Most term life insurance is underwritten, meaning a medical exam is required, and your health history will be reviewed. You can also purchase a “guaranteed issue” term policy that allows you to avoid a medical exam, but these policies are usually more costly.

When considering a term life policy, it is important to consider your financial goals and how long you need coverage. For example, if you plan to buy a home or start a business and need to borrow money, you might want a longer term. On the other hand, if you’re considering retiring and leaving your family a significant sum of money to support them, a shorter term might be better.

In addition to the term length, you’ll need to decide who will receive your death benefits if you die during the policy’s duration. Beneficiaries are typically your family but can be anyone you choose — such as a charitable organization or a friend.

One of the benefits of a term policy is that you can reassess your needs without having to undergo a medical exam, and some policies offer a conversion option that lets you change your policy into a permanent life insurance policy within a certain number of years without undergoing a medical exam.

When shopping for a term life insurance policy, it’s important to check the company’s reputation and ratings. Review their rating with the Better Business Bureau, the National Association of Insurance Commissioners, and consumer review websites to understand customer satisfaction and claims history. Ask the agent what types of riders are available and if any would increase your premium.

Whole life insurance, also called ordinary life or straight life insurance, is a form of permanent life insurance that guarantees a death benefit and builds cash value over time. It offers a fixed death benefit and level premiums for life, and it may provide annual dividends (an amount paid to the policyholder by the insurance company above and beyond their regular premium payments).

The cash value in a whole-life policy grows tax deferred and can be used over your lifetime1 – however, borrowing against this money will reduce your death benefit and any future payouts. The cash value in a whole-life policy can also be used as collateral to secure a loan, potentially saving you interest charges.

Traditional whole-life policies are based on long-term estimates of expense, interest, and mortality charges. These estimates determine the death benefit amount, accumulated cash value, and the premiums you pay.

A whole life policy can provide peace of mind, knowing that your family will receive a death benefit when you die, provided that you continue to pay your premiums. It can also offer other benefits, such as a savings component and the ability to borrow against your accumulated cash value.

Some insurers also provide the option of paying you dividends from the accumulated cash value in your policy over time. This can help reduce your premium costs and add to the amount of the death benefit you receive.

The main drawbacks of a whole-life policy are that it’s generally more expensive than term life insurance, and the cash value accumulation is usually much lower than other investment options. Talking with a financial professional to understand your needs and goals to find the best life insurance is important.

If you decide that a whole-life policy is right for your situation, choose an insurer with a high financial strength rating. This means the insurer will likely be around decades from now and can pay your death benefit if necessary. NerdWallet recommends checking insurers’ financial strength ratings using independent sources like AM Best.

A universal life insurance policy combines whole and term life insurance elements, allowing you to adjust your premiums and death benefits. This type of policy is typically more expensive than an entire life insurance plan, but it can provide greater flexibility in the future, depending on your financial needs.

Universal life plans also allow you to increase your coverage over time, which is a good option if your family’s income changes. However, if you cancel your policy at any point, your death benefit will decrease accordingly.

When you purchase a universal life insurance policy, you can choose the minimum and maximum premium you want to pay. This amount is based on your age, sex, medical history, and the amount of coverage you select. The remainder of your payments, minus administrative charges and other directly associated costs, go toward the policy’s cash value. Over time, the cash value accumulates at a rate guaranteed by the insurance company or based on the current market.

You may also take a partial withdrawal or loan from your policy’s cash value. However, it’s important to note that doing so will reduce the overall death benefit and may cause the policy to lapse if not paid back within a certain period.

As with a whole life insurance policy, a universal life policy’s death benefit and cash value are protected from loss as long as you pay your premiums on time. This feature is known as a guaranteed premium structure.

Unlike whole life insurance, a universal life policy’s interest rate is based on the current market rather than a guaranteed minimum. As a result, it may perform less favorably than whole life insurance or other policies with a guaranteed minimum interest rate.

If you have a lot of money saved and want a flexible life insurance policy with an increasing death benefit, a universal life policy might be the right choice. However, it’s important to weigh the options carefully and consult a financial professional before choosing a life insurance policy.

People who buy life insurance with cash value often want more than just protection — they also want a way to invest their money. Typically, they have already maximized their contributions to traditional tax-advantaged investment accounts and are looking for additional ways to invest. Unlike other permanent policies, variable life and variable universal life (VUL) allow you to choose which sub-accounts to put your policy’s cash value into. This offers more investment flexibility and potential growth than whole-life or permanent insurance options.

However, the riskier nature of a VUL usually means higher fees and expenses than other types of life insurance. You can find a comprehensive breakdown of the fees and expenses in a policy prospectus, which a financial professional can provide.

Aside from the fees and expenses, a key consideration with this type of life insurance is that any amount borrowed from the cash account will reduce your death benefit. This can be a serious issue for some beneficiaries, especially in cases of terminal illness.

The other drawback of a variable life policy is that it needs to be designed to be used as a short-term savings vehicle. Your insurance will lapse if you don’t make enough premium payments or your policy’s cash account dips below the minimum level due to a loan or poor investments.

With all the different features of permanent life insurance, it’s important to consider the benefits and risks before deciding what type is best for you. You should always consult with a financial professional and review your options carefully to ensure you’re getting the most out of your life insurance.

Before being approved for permanent insurance, you’ll undergo the standard life insurance medical exam, similar to a regular health screening. Then, the insurer will review your application details to determine a premium and coverage level that’s right for you. It may take several years to borrow from your policy’s cash value and receive a death benefit, subject to income taxes. Your beneficiaries can avoid paying tax on any amounts they withdraw or borrow from the policy if they use the proceeds for qualified purposes, such as paying off debt, paying for education, or assisting with retirement expenses.