Hey everyone, it’s Jessica Maiato, your Life Insurance Sales Agent here at Freisenbruch Meyer. Today, I’ll be talking to you about the most frequently asked questions I get about Permanent Life policies and their cash value:
How does this type of policy work?
With a cash value life insurance policy, a portion of each premium you pay goes toward insuring your life. Meanwhile, another portion goes toward a savings/investment vehicle that accumulates over time. When your policy’s cash value grows, the new total is automatically guaranteed and is protected from declines—unless you use it for a different purpose. Therefore, the only way it can be reduced is if you choose to use the cash value during your lifetime.
What does Whole Life cover?
Permanent Life—also known as Whole Life—covers the entire life of the insured. When you have a Permanent Life policy, it will provide a cash payout to your beneficiaries upon your death.
Can I access the cash value during my lifetime?
Yes, you can use the cash value for unexpected situations such as:
1) If an emergency arises, you can access your accumulated cash value to help cover the cost, if needed.
2) If you’re experiencing unexpected financial challenges and cannot pay your premium, you can access your cash value to cover it for a period of time. This is known as being “paid up” and the vast majority of life insurance companies are willing to honor this request—all you have to do is ask. Using this tactic, you could save $2,000 or more in premiums each year.
3) If you have an outstanding loan that you wish to pay off with a lump sum, you can request your available cash value and use it to do so. Also, if you’ve built up a sizable cash value, you may choose to take out a loan against your policy. Life insurance companies often offer these cash value loans at annual interest rates lower than a traditional bank loan. Of course, you’re not obligated to pay back the loan since you’re essentially borrowing your own money. However, it’s important to note that any money you borrow, plus interest, will be deducted from the death benefit when you die.
4) In recent years, cash value life insurance policies have become extremely popular with investors looking to supplement their retirement income. If you’ve accumulated a healthy cash value, you can use these funds in a variety of ways as an asset in your retirement portfolio. Most advisors say that policyholders should give their policy at least ten to fifteen years to grow before tapping into their cash value for retirement income though—talk to your life insurance agent or financial advisor about whether this tactic is right for your situation.
5) If you have a sizable cash value but don’t have a use for it, you may be able to increase the amount of money left to your beneficiaries. This is a simple way to make sure your family doesn’t just lose the cash value you’ve built up over time when you pass away, but the option isn’t always available—you’ll need to check this option with your insurer.
Similarly, if you have a Permanent Life insurance policy from an insurer, you can use any dividends you receive to purchase paid-up additions. Buying these is similar to buying a small single-premium life insurance policy—you increase the policy’s cash value and death benefit but don’t have ongoing payments.
What happens to the cash value upon my death?
Simple: Upon your passing, any cash value will usually revert to the life insurance company and your beneficiaries will receive the policy’s death benefit amount, minus any loans and/or withdrawals from the cash value that you made during your lifetime. For instance, if you had half a million ($500,000) in coverage—the amount of your policy’s death benefit in this example—and an outstanding loan of $20,000 that you borrowed from the cash value before you passed, then your beneficiaries would receive a payout of $480,000.
Hopefully, this information has given you a better understanding of Permanent Life insurance policies. The reality is, we can’t know when we’ll pass away. It could be today, tomorrow, or 50 years from now, but it will happen eventually. No amount of money could ever replace a person. But, more than anything, life insurance can help provide protection from the uncertainties in life, protecting your heirs from the unknown and helping them through an otherwise difficult time. Without a doubt, having life insurance coverage will bring you and your family peace of mind. It’s one thing you can be certain of—you’ll no longer have to question whether they’ll be taken care of when you’re gone.
If you would like more information about how a life insurance policy works—or about gifting one to someone else—contact Jessica Maiato, Life Insurance Sales Agent at Freisenbruch Meyer, on 294-4618 or email her at email@example.com.