A life insurance policy with cash value may be considered an investment. At some companies, a portion of the premiums are put into a cash savings account, earning interest with potential tax savings.1 Aflac’s plans function differently, but still offer a variety of benefits like portability and renewability. Some life insurance plans with cash value allow the policyholder the option of withdrawing funds that can help pay for necessary expenses. Read on to learn what cash value life insurance is, some types of policies that offer cash value, and ways to access these funds.
What is Cash Value Life Insurance?
Life insurance with cash value is a type of permanent policy that can build funds over time through the cash value component. Cash value can function in a variety of permanent plans, including whole, universal, variable, and indexed life insurance.
The two main components that make up a life insurance policy are the death benefit and the cash value. The death benefit is the part of the plan that the beneficiaries receive later on. You can predetermine what you would like this face value to be upfront. At some companies, the cash value of the life insurance policy grows separately in a tax-deferred account.1 Aflac utilizes a different route, so it depends on your preference.
The cash value portion of this life insurance plan can be particularly appealing because you may be able to access the money early. One can do this by taking out a loan against the policy, surrendering the policy, or making a withdrawal.1
Types of Life Insurance Policies with Cash Value
Many people think the cash value portion of the life insurance plan may limit their options. However, there are a variety of permanent policy types that can operate with this feature. Typically, term life insurance does not have cash value, but it can save you money upfront if planned wisely.
Below are a few types of life insurance policies that may have a cash value portion. Knowing your options is crucial when making key decisions about which life insurance plan will work best for you.
Whole Life Insurance
Whole life insurance is a type of permanent insurance that lasts the entire life of the policyholder, with premiums being paid regularly. It’s believed that whole life is one of the most popular choices in the life insurance market. The cash value of whole life insurance can still grow with potential tax savings, and the death benefit is guaranteed, so long as the premiums are paid (subject to limitation and exclusions). The premiums in this type of plan are usually fixed.
Aflac offers a whole life insurance plan option that requires no medical exam and is portable, so you can take it with you wherever you go. Get a quote and more information to see if this policy type makes sense for you.
Universal Life Insurance
While whole life insurance and universal life insurance have a few similarities, there is one key difference. Many universal life insurance plans allow you the ability to change the value of premium payments.2 This may give you more adjustability in different seasons of life.
With universal life insurance, you can scale the death benefit up or down depending on your unique circumstances.2 The cash value of a universal life insurance policy is helpful because it can be used to pay for the premiums or other expenses, as needed.2
Variable Life Insurance
Variable life insurance fits its name nicely, as it has many variables. In this type of plan, you have greater access to investment tools, like cash value.3 This type of plan tends to involve more risk, as the cash value will grow or diminish depending on how the investments chosen are doing.3
This may be a great route if you have experience with investment accounts, are comfortable taking risks, and aim to grow your cash value over time.
Indexed Life Insurance
An indexed life insurance plan has a greater relationship with the stock market, as this is what is used to determine growth.4 How the index chosen performs directly impacts the rate of return on the cash value within the life insurance policy.4
While there is a certain level of risk involved in an indexed universal life insurance plan, you can typically still secure a guaranteed minimum interest rate.4
