Cash Value Insurance

Cash value insurance offers a forced savings or investment component. There are three types of cash value insurance available which is whole life, Universal Life and Variable Life.

Cash value insurance also comes in a variety of forms. It is more expensive that term insurance because it offers a forced savings or investment component as well as insurance. The savings component grows tax deferred, and it takes 20 years or longer to realize a substantial savings component, the cash value.

If you own your own life insurance and you die, the precedes become a part of your taxable estate. If your spouse of children own the policy, the precedes go to them without income tax levied on them, and it is no longer considered part of your taxable estate.

In later years, you can use the cash value to pay future premiums, or you can borrow against it . If you choose not to repay the loan, your death benefit will be reduced by the amount of the loan. If you cancel your insurance contract and have any accumulated cash value, it will be returned to you. There are three types of cash value insurance available:

Whole life. A whole life policy is the most traditional cash value policy, and it has been around for a long time. It's a product designed to cover you for your "whole" life. It will pay the face value of your policy to your beneficiaries at the time of your death. You also build up savings over the years that you own the policy. The savings rate is very low.

Universal life. This is variation of whole life. It become popular in the 1970s and 1980s when interest rates were very high, and it was offered as an alternative to the low interest that whole life policies paid.

Variable life. Still another version of whole life that allows you to invest the cash value portion of your policy in specific stock, bond, or money market portfolios. The owner of the policy makes the investment decisions, and your cash value is determined by how well the investment choices perform.

Don't get caught in ac "churning" scheme. Unscrupulous agents will chum your insurance policies by suggesting a new cash value life insurance policy to replace your old one, not because you need a different policy but because they get a hefty commission for new business.