Cash-value life insurance is a type of life insurance policy that combines a death benefit with a savings or investment component. This type of insurance provides not only a payout to beneficiaries upon the policyholder’s death but also accumulates a cash value over time.
Here are the key features of cash-value life insurance (aka Investment Growth within a Life Insurance Policy):
- Death Benefit: Like other life insurance policies, cash-value life insurance pays a death benefit to the designated beneficiaries when the policyholder passes away.
- Cash Value Accumulation: A portion of the premium paid by the policyholder goes into a cash-value account. This cash value grows over time, either through interest, investment returns, or a combination of both. The policyholder can access or borrow against this cash value during their lifetime.
- Policy Options: There are different types of cash-value life insurance, including whole life insurance, universal life insurance, and variable life insurance. Each type has its own characteristics and may offer various options for premium payments, death benefits, and investment choices.
- Premiums: These policies typically have higher premiums compared to term life insurance, which provides coverage for a specific term without an investment component. The extra premium payments contribute to the cash value and the policy’s long-term sustainability.
- Flexibility: Policyholders often have the flexibility to adjust their premium payments, death benefits, and the investment allocation of the cash value within certain limits.
- Tax Benefits: The cash value in a life insurance policy can grow tax-deferred, meaning that policyholders do not pay taxes on the growth until they withdraw or borrow from the cash value.
It’s important to note that while cash-value life insurance offers a savings or investment component, it may not be the most cost-effective option for pure life insurance coverage. Individuals should carefully consider their financial goals, risk tolerance, and insurance needs before choosing a life insurance policy. Additionally, consulting with a financial advisor is recommended to fully understand the implications and benefits of cash-value life insurance.