Cash-value life insurance can increase the overall value of your policy, depending on how you use the cash portion. Life insurance policies that include a cash value policy will allow you to build equity in your policy either through investments or by saving part of the premiums. Once you have built up enough equity, there may be an opportunity to utilize a portion, or in some cases, all of the equity you have established. Only using a portion of the equity will keep the majority of your death benefit intact. If you choose to use all of your equity, you may want to cash in your policy and start over.
How Does Cash Value Work?
When you purchase a cash value policy, your premiums are designed to do two things. First, most of your premiums will go toward building your death benefit. Second, a small portion of your premiums will be used to create a cash account. The money in the cash account will be used to make investments that will hopefully have a high return on your investment. The longer the money can be kept in investments, the quicker your policy will begin to build equity. Once you have reached a certain amount of equity, you will be able to access some or all of your cash value.
How Can You Withdraw Cash from Your Policy?
You can access the money from the cash value portion of your policy in several ways. You can borrow against it like you would take out a loan. You can also make a cash withdrawal without incurring any penalties. If you want to surrender the entire policy, you can pull all of your money out of the account. Another option is to use your policy’s cash value to pay for your premiums. This is beneficial for many because, once a certain amount of equity is reached, the policy will be able to pay for itself. Maintaining the cash value of your policy will help you take care of your premiums without draining your budget.
What Can You Use the Money for?
If you borrow against your policy’s cash value, you can use the money for almost anything you want without paying taxes on it. If you go over the value of your policy, the extra amount will be taxed as income. Remember that the more you withdraw from the cash value of your policy, the less your death benefit will be for your loved one. Depending on your circumstances, that could spell disaster, but if you don’t have to worry about taking care of your family, you can regain the use of your money.
Learning about all of the benefits of a cash value policy can help you make better financial decisions for the future. Call the agents at Young Insurance and find out everything you need to know about a cash value policy. We understand how important it is to know about all of your options. That’s why we are here to help you stay informed.
Related Read: How to Get the Most out of Your Life Insurance