What is a cash value insurance policy in the United States? Who benefits from it and what are the various types?
How Can You Benefit from It?
A lot of people are not very much familiar with this term, “cash value insurance policy” because the focus has always been on car insurance, home, business and other very popular policy terms.
But it might interest you to know that there is a policy known as the (cash value insurance policy) and as the name already suggests, its value is in actual cash return.
However, before you jump to a conclusion as to whether this might just be the right policy to lock your money away for a couple years, I’d like to walk you through some of the ideas behind cash value insurance policy, and how it works among other vital information that I can cover in this article.
What is Cash Value Policy?
To put it in a simple and brief sentence, a cash value insurance policy is one that provides actual cash value in return to those who subscribe to it.
That is, you can intentionally include this plan as part of your premium. This would allow your insurance company to lock away some funds into (more like a cash vault) awaiting when you make a cashout request for it.
Simple? Well, there is more to it than you do need to learn, and as brief, as this article would be, I intend to educate you on how this works.
How Does Cash Value Insurance Work?
A cash value policy is part of your premium or could be described as an optional sub-category that anyone can take advantage of. But here is how this actually works.
When you subscribe to a sub-category such as cash value policy, you are simply saying that the same portion of the money should be reserved for you should there be a need for you to be in need of cash at a certain point in time when that policy is mature enough to harvest.
So here’s what the insurance company now does on your behalf. They split your money in 3. The first part goes to your premium, another goes to your policy running cost or maintenance charges for the company, while another part is locked in for your cash value balance.
It is almost like saying you are opening a target savings account, but of course with a little tweak to it according to the laws guiding insurance companies.
Who Can Benefit from Cash Value Insurance?
Basically, any individual who has an insurance policy already running or is about to subscribe can benefit from cash value insurance. However, in my opinion, it is always better to speak with an insurance broker for more clarification on how this can benefit you both in the short and long term period. You may need to read this article to see why you should always involve an independent broker.
What Are the Types of Cash Value Insurance?
Like many popular policies, there are options too and you do have the freedom to choose from the lists made available by your insurer.
Let me share just a few here with you, then you could go ahead with this information to make more inquiries from your insurance advisor:
1. Whole Life
Also referred to as straight or ordinary life insurance. It gives you the benefits as long as you are alive and your initial premium selection price stays the same for a lifetime. But you must know that the price of premiums is age-sensitive.
What do I mean? The younger you are when you subscribe for the whole insurance policy the lower your premium rate is, compared with someone who’s already way older. This is because the younger you are the longer you’re believed to stay subscribed so the cost is lowered for you based on long-term benefits.
2. Guaranteed Issue Life
This Is one of the types of life insurance or cash value policy that outlives the person who owns it and can be accessible by their beneficiary in the event of death. But you must note that the accumulation of interest is quite low and takes time to build up.
3. Variable Life
It is quite an interesting option. In this plan, your death and cash value benefits are diversified and invested in portfolios such as bonds, stocks and other investment options that may fit the times. It is however expected that the company gives you adequate data on which portfolios your money is being invested on. You are more like the proprietor and you get to pick where your cash value is invested. Your cash or death benefit value therefore would either increase or decrease based on the market trend.
So this equally means that you are taking the market risk fluctuation as the proprietor same as the policyholder(s).
Does It Grow Fast?
No! That is the short answer. Should that stop you from locking money into it?
You see, a cash value insurance policy has many benefits that you can key into if you understand how it works. Beyond just growing your cash and withdrawing it, below are some interesting benefits.
- Taking a loan against it: You can take cash loans for any purpose as long as you have this plan
- Withdraw Cash Build Up: You can withdraw cash from this policy to sort out personal needs.
- For Emergency: Taking out money from your cash value insurance policy plan to pay for emergencies is also very much allowed.
You can also use it to supplement your premiums or just simply request for the cash after a charge fee has been removed, everything else is yours, especially if you’re ending the policy with your insurer.