President, Lane Independent Agency, Southern California
Some life insurance accumulates equity, known as cash value. Some does not. If you buy Term insurance, which is temporary, with a rate guaranteed for a specific number of years, it will never accumulate cash value. However, if you buy permanent life insurance, either whole life or universal life, it will accumulate equity. Equity can be borrowed against and even then kept and never paid back, totally tax free, although it will generally lower the death benefit if not repaid. Cash value can be used for retirement, or even for college funding. That money is tax free. While it starts out costing more, at the end, it definitely is cheaper long term and can even pay its own premium out of the accumulated cash value. Talk with an experienced agent. Love to help. Thank you. GARY LANE.
That is a great question! There are two basic kinds of life insurance. One is called term insurance. It lasts a specified length of time, has no cash value, and ends at the designated date. The other is called whole life. It lasts as long as you do, and has a feature where there is an amount of cash that grows within the policy that is available , should you need it. If you would like to talk about ths more, please feel free to contact me, I'm happy to help. Thanks for asking!
Business Development Officer, T.D. McNeil Insurance Services, Fresno, California
The percentage of the population that will die at a given age increases with age. That is, there will be a higher percentage of 50 years die in a given year than 20 year olds. That is why term life insurance is more expensive for a 50 year old than it is for a 20 year old. Imagine what the cost would be fore term life insurance for a 90 year old.
The choice then, is to purchase a policy that will pay a death benefit should you die in the next term (10 20 years for example.) The problem is that you are likely, very likely to live longer than the term. If you still want the death benefit paid to those you love, you must take steps to get a longer term policy, in which case you will probably still outlive the policy term, or buy a whole life policy.
The whole life policy will have an initial premium that is greater than the term insurance premium, because it is going to pay the death benefit sometime and it guarantees not to increase the premium, ever. The whole life policy can do this because it accumulates reserves in anticipation of the increasing frequency of death claims as you age. These accumulated reserves become the cash value of the policy.
Because the premium for term insurance increases as you become older there will be as point at which the whole life insurance purchased at an earlier age will be cheaper than the term policy purchased at an increased age.
The cash value gives the policyholder the flexibility to make adjustments over time. It provides a cash reserve or emergency fund and a loan can be taken against the policy. If the coverage is no longer necessary it can be surrendered and the cash value will be given to the owner of the policy.
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The choice then, is to purchase a policy that will pay a death benefit should you die in the next term (10 20 years for example.) The problem is that you are likely, very likely to live longer than the term. If you still want the death benefit paid to those you love, you must take steps to get a longer term policy, in which case you will probably still outlive the policy term, or buy a whole life policy.
The whole life policy will have an initial premium that is greater than the term insurance premium, because it is going to pay the death benefit sometime and it guarantees not to increase the premium, ever. The whole life policy can do this because it accumulates reserves in anticipation of the increasing frequency of death claims as you age. These accumulated reserves become the cash value of the policy.
Because the premium for term insurance increases as you become older there will be as point at which the whole life insurance purchased at an earlier age will be cheaper than the term policy purchased at an increased age.
The cash value gives the policyholder the flexibility to make adjustments over time. It provides a cash reserve or emergency fund and a loan can be taken against the policy. If the coverage is no longer necessary it can be surrendered and the cash value will be given to the owner of the policy.