If you have bought a whole- or universal life insurance policy, you might know that your policy offers cash value accumulation. This is a savings and investment benefit that you can use while you are still alive. You should always use a cash value benefit during your life. It doesn’t automatically become part of your death benefit when you die. So, what can you do to use this benefit while you are still alive?
Understanding Cash Value Benefits
Many life insurance policies only last a certain number of years. However, others last as long as you continue to pay your premium. These are whole- and universal life policies. Each varies, but the main benefits they provide are death benefits and cash value options.
When your life insurance offers a cash value option, this means your policy can make money. Your insurer will invest a portion of your premium into appropriate funds. The returns on that investment will go into an account that is separate from your death benefit. The investment will accumulate cash value and can provide the policyholder with income.
Using Your Cash Value Benefit
As your cash value account accumulates value, you might be able to use that money in different ways:
- In some cases, you can request to roll the amount in your cash value account into your death benefit. Many insurance companies will honor this request on certain policies. However, you must make the decision before you die. If you do not transfer the cash value to the death benefit amount, then it won’t occur automatically on your death. At that point, the cash value account goes away.
- You can often use cash value accumulation to pay your life insurance premium. You can establish a cycle where you are using the investment money, rather than other income, to pay.
- If you let your policy accumulate cash value over for a number of years, then the policy might provide a source of income to you in your retirement.
- It is possible to withdraw money from your cash value policy, in addition to taking out a loan on the policy. However, if you take out a loan, then the amount of your eventual death benefit might decrease. The insurer might subtract the value of the loan from the total death benefit.
When deciding what to do with cash value accumulation, consider how you might need to use income. This can help you make the right decisions. Keep in mind, too, that based on the withdrawal you make, you might face tax requirements. Your agent can help you understand the withdrawal options your policy will offer. Fill out a online quote form today to get started!