As is common knowledge, life Insurance protects your family and loved ones financially in the event of your death. However, were you aware that certain life insurance contracts have a Cash value that appreciates over time? And did you know that some of these policies permit access to the cash value while you are still alive?

Permanent life insurance plans are in effect for the insured’s whole lifetime and accrue cash value over time. These permanent policies have a Death Benefit (or face amount), which is the amount paid upon death, and a cash value that accumulates tax-deferred over time, similar to retirement or college savings plans.

How is cash value implemented?

Depending on the type of permanent policy you have, your cash value will accumulate differently over time. Keep in mind that there are limits on how much your cash value may grow relative to your death benefit, even though many permanent policies permit you to add additional funds to the policy to raise its cash value. If an insurance policy is overfunded, it is considered an investment and loses its tax benefits. However, your insurer will monitor the policy to ensure that it adheres to the criteria.

In addition, many permanent policies allow you to access your cash value at any time and for any purpose, whether it’s for a down payment on a home, paying for your child’s education, or supplementing your retirement income. You may even be able to defer premium payments by using the cash value to continue paying your life insurance premiums and preserve your present life insurance coverage.

What happens to the cash worth after passing?

When a death claim is made, the contract is terminated and the cash value ceases to grow. The cash value may or may not be paid in addition to the death benefit, depending on the type of insurance and death benefit. Consult your independent agent to determine how a particular permanent life insurance policy treats monetary worth after death.

Types of permanent life insurance

Permanent life insurance comes in four forms: whole life, universal life, variable life, and variable universal life. Consult with an independent agent to assist you to choose the best option.

Whole life insurance.

Whole life insurance is the simplest choice with almost no risk. The premiums for whole life insurance do not change. Also assured are the death benefit and cash value amounts. You will receive a chart with predetermined cash value numbers for each year of your policy when you purchase whole life insurance. If you wanted to withdraw from your cash value but did not know how much you could withdraw, you would use this chart to establish your cash value at that time in your contract.

Universal life insurance.

Universal life (UL) insurance policies combine a death payout with an interest-bearing savings account. Today, average interest rates for UL plans range between 3 and 4 percent and are routinely evaluated and altered as necessary. A minimum interest rate is also specified in the contract. UL provides the flexibility of variable premiums, so you can pay less when your finances are tight and more when you have excess income. The policy has a guaranteed minimum death benefit, assuming your premium payments can support it, as well as a bigger cash value potential due to the policy’s interest accumulation and the option to increase your premiums.

Variable life insurance.

Variable life (VL) insurance has fixed premiums. However, these fixed premiums are assigned to several investment possibilities, much like mutual funds. Your liquidity is contingent on the performance of these investments. This transfers the insurance company’s investment risks to you. There is the possibility of achieving a considerably higher cash value, but there is also the possibility of losing some or all of your cash value.

Variable universal life insurance.

Variable universal life (VUL) combines the investment aspect of variable life (VL) with the adaptability of UL’s variable premium payments. You can invest tax-free in many investment options with varying degrees of risk and return. If your needs change after acquiring the policy, you can modify the coverage amount without entering into a new contract. If you are short on funds, you can utilize the cash value to pay for the policy’s expenses. To boost your cash value, you might increase your premiums or make a lump-sum payment. As with variable life, this policy has greater risk and possible gain than whole life. However, it is adaptable should your demands alter over time.

Ask your independent Grange Life agent about suitable term and permanent policies.