02 Oct Cash Value in Permanent Life Insurance: How It Works and Why It Matters
Cash Value in Life Insurance
The cash value component of permanent life insurance is one of its most appealing features. But how does it work, and why should it matter to policyholders? This article breaks down the mechanics of cash value in life insurance and explores its benefits. (Understanding the Cash Value in Permanent Life Insurance)
What is Cash Value?
Cash value is the savings component of permanent life insurance, such as whole life or universal life. As you pay your premiums, part of the money goes toward the insurance coverage, and part is deposited into the cash value, which grows over time.
How Can You Access the Cash Value?
Once accumulated, the cash value can be accessed in several ways:
- Withdrawals: You can withdraw money from the cash value, reducing the death benefit by the amount withdrawn.
- Loans: You can borrow against the cash value, using it as collateral for a tax-free loan. However, any unpaid loans will reduce the death benefit.
Why Cash Value Matters:
- Financial Flexibility: Cash value allows policyholders to tap into savings without liquidating other investments.
- Tax Advantages: The cash value grows tax-deferred, and loans taken from it are tax-free.
- Supplement Retirement Income: Cash value can serve as a source of retirement income if managed correctly.
The cash value of permanent life insurance provides policyholders with flexibility and financial growth beyond just a death benefit. It’s an important feature for those looking for long-term financial security and planning.
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