When you make payments for your insurance premium, the amount is divided into different parts. While one portion goes to the policy’s death benefit, another portion goes for the insurance company. The third portion accumulates to form the cash value account which exists only if you have a cash-value life insurance policy. Cash-value life insurance policies are mostly variable life, whole life, and universal life insurance policies in which the cash value account feature is in-built. A term based life insurance policy will not have the cash value account feature.
The death benefit of your life insurance policy is the total amount of money that your family will get after your death. If you surrender your policy before your death, you will get a sum that’s called cash surrender value which will be lesser than the death benefit amount. Your termly premiums will build up your death benefit for a lifetime if it’s a whole life policy and it will be built up during a course of the fixed time period if it’s a term based policy. Term-based policies are much cheaper than whole life insurance policies because they are usually termed for 20 to 30 years. However, the people who do not sign up for a whole life insurance policy don’t get to enjoy the benefits of a cash value account.
A cash value account has many benefits that you can enjoy throughout the existence of your policy. Since cash value accounts are available only for lifelong insurance policies, you need not worry if your life insurance policy will get expired in a few years or not. You may not be able to get the benefits of your insurance policy when you’re dire in need of it if you sign up for a term based insurance policy.
Once you have a considerable amount in your cash value account, you can use it for many things. You can use the money from your cash value account to pay for your policy premium in case you run short of money during a particular term. You can use your cash value account for taking a loan that will have interest rates lesser than that of a bank. Well, these are quite impressive things to have, and you know what policy to sign up for if you want to enjoy these benefits.
At some point, if you feel like selling your life insurance policy since it does not make any sense to you anymore, the higher the cash value, the better the price you can sell it for. While the death benefit of your life insurance policy will help your family after your death, the cash value account is a forced account which will help you while you’re still alive. Even so, you may want to end things with your whole life insurance policy due to various reasons like a divorce, urgent need of money, and medical expenses during your old age. In such cases, you can approach a life settlement company who is into life settlement business to get the best deal of cashing in life insurance policy.
When you withdraw money from your cash value account, the value of your death benefit is also reduced. You need to pay back the amount along with an interest which is usually very low. However, you are not obliged to pay back the money that you take out of your cash value account. This money will be deducted from the death benefit after you pass on and your beneficiaries will receive whatever is left after the deductions. Today, it’s not an odd event to sell your insurance policy, and if you want to get a better price on your policy, your cash value account must be intact. We can say that the value of your policy and death benefit is directly proportional to the value of your cash value account. The extent to which the former is affected by the latter varies according to the type of insurance policy you’ve signed up for. For example, in a universal life insurance policy, the relationship is dollar-by-dollar which means every dollar you withdraw from your cash value account a dollar will be deducted from your death benefit.