Cash Value of Your Whole Life Policy

One benefit of a whole life insurance policy is that you get a cash value account in addition to the face amount. The face amount is the amount of money that the company pays out to the person you indicated when naming a beneficiary to your policy. A cash value is an additional account in which you deposit some of your premium money. The account accumulates money over the years that you can tap into whenever you wish. This cash value account is tax-deferred, and you can use it to invest or borrow against.

If you ever decide to cancel your insurance plan, you can get all or some of your cash value amount back. You will get the entire amount back if you do not owe the company any money (for fees or premium payments). A lot of people prefer cash value accounts with their permanent life insurance policy because it adds a layer of protection and flexibility. They have the assurance that their family is taken care of while using the added benefit of the cash value account.

Whole Life versus Term

A whole life policy does not require you to renew it because it is never ending. The payout is guaranteed for your beneficiaries. This is preferable to term insurance, which requires you to re-qualify after a number of years or certain life events. Many policies will give the client the entire amount of the life insurance policy if he or she lives to be a senior of 100 years old. This is called the "termination date." Many insurance policy holders like the lifetime insurance policy because it is tax-deferrable. They often use it to shelter some of their income and then pass the benefit amount to their estate or trust fund.

Cash Value Account Explained

You may turn in the whole life insurance policy for the cash value that has built up over the years. The account is like a home that builds equity. Most people use the cash value to borrow against it for outside loans. The account is like a security blanket that will enable you to get loans you otherwise might not be able to obtain. Some companies will not allow a borrower to use the cash value until a few years have passed so check with your life insurance agent about the company rules. You will get charged interest at a rate set by the company, so be sure to ask about that as well. If you end up owing money on the life insurance policy upon your passing, that amount will be deducted from the cash value or total benefit amount.

Cash Value Tax Benefits

Many people prefer the lifetime insurance because the tax benefits are very good. The interest on the cash value is not taxed every year, as long as the dividends do not exceed the premium amount. Usually, life insurance benefit sums are not taxed as income, but they might be subject to estate taxes and gift taxes. You can also add the cash value amount to your insurance policy to lower the taxes. The issue of taxation is complicated, so consult a financial advisor for more information.

Compare Whole Life Insurance

Overall, the cash value of your whole life policy gives you a measure of protection that a term insurance policy does not. You will get to have the added security of a cash value account. A never ending policy means that you won't ever have to pay renewal fees, unlike a term policy. Your initial quotes/rates may be higher with a whole life policy, but the benefits are greater.