Cash Value Insurance

by: Hamid Karzai

Cash Value insurance, also known as “hole life” insurance is a basic and consistent type of permanent life insurance which remains in effect your entire life at a level premium. This life insurance is an awesome choice got you if you do not expect your life insurance needs to diminish over time. A portion of your premium goes into a reserve fund called ‘cash value’ that builds up over the years your policy is in affect. Your reserve fund is tax-deferred and you can borrow against it, until you withdraw it.

The premiums must generally remain constant over the life of the policy and must be paid periodically according to the amount indicated in the policy. You may also have the option of a single premium ----- paying all of the premiums at once with a single lump sum. Your cash values will grow to equal the amount of the death benefit when you turn to age 100.

Although, cash value insurance is quite expensive, and if you're on a small budget, you may not be able to afford all the insurance coverage you actually need. But the plus point is that the death benefit is guaranteed as long as premiums are met. Also death benefit will never go lower if you don't borrow against it.

Whole life insurance policy's returns will fluctuate with the markets and will usually follow returns available from other investments like equity mutual funds. However, if you decide to quit your policy, your cash value can be paid in cash or paid-up insurance.

Whole life insurance is most suitable for you, if you want to:

1. use it as a tax and estate planning vehicle,
2. accumulate cash value for a child's education or retirement,
3. pay final expenses,
4. provide money for a favorite charity,
5. fund a business buy/sell agreement,
6. provide key person protection. 

Before buying the cash value insurance, you need to think carefully about choosing your level of coverage. Too often people make the mistake of insufficiently covering or even worse, financially overextending themselves. This would be a tragic error with whole life insurance policy because defaulting on premium payments can mean policy cancellation and the loss of your entire investment. So be careful and make sure you:

1. pick a life insurance policy that has a guaranteed cash value starting at the very first year,
2. choose the one with the highest cash value in the very first year,
3. consider "participating" insurance policies which can pay dividends, increasing your policy's value by boosting both the total cash value and the death benefits,
4. beware of any insurance policy that levies "surrender charges" when you cancel.
5. if you ever need to stop paying premiums, your policy lets you use the accumulated cash value of the life insurance policy to pay the premiums, thus keeping your coverage current.