What to Understand Before Buying Life Insurance With Cash Value
Protection first. Financial flexibility second.
“Protection first. Financial flexibility second.”
Permanent life insurance may provide a death benefit and build cash value, but its value depends on policy design, funding discipline, costs, and how it fits alongside other financial priorities.
Start with the insurance need
Identify who depends on your income, the financial obligations that would remain after death, and the duration of protection needed. Compare permanent coverage with term insurance rather than assuming one is always superior.
Cash value is not a checking account
Cash value generally develops over time after premiums and policy charges. Early surrender values may be much lower than premiums paid. The accessible amount, timing, and costs depend on the policy.
Understand loans before using a “family bank”
Policy loans generally accrue interest and reduce available cash value and death benefit while outstanding. Excessive borrowing can cause a lapse; if a policy lapses with a gain and loans outstanding, unexpected taxable income may result.
Evaluate guarantees and illustrations
Request both guaranteed and nonguaranteed values. For indexed universal life, understand caps, participation rates, charges, crediting assumptions, and what happens when performance is weaker than illustrated.
Conceptual or hypothetical comparison. Not a guarantee or actual product illustration.
Ask for an in-force illustration at conservative assumptions and a written explanation of loan and lapse risks.
What to do next
Request written explanations of fees, restrictions, assumptions and alternatives. Consider the strategy in the context of your entire financial life, and review it with appropriately qualified professionals.
Make your next financial decision a coordinated one.
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About the author
Natalie Taylor is the founder of Winning In Wealth, a financial services agency established in 2015 to empower individuals and business owners to make money, keep money, build wealth and create a legacy. She is licensed in all 50 states, previously worked on Wall Street with Credit Suisse and Ernst & Young, and holds an MBA in Strategy and a BSc in Accounting and Finance. Read her full bio
Sources and further reading
Educational disclosure
This article is for general education and does not constitute individualized investment, insurance, tax or legal advice. Financial products and strategies involve costs, limitations and risks. Any guarantees depend on contract terms and the issuing insurer's claims-paying ability. Examples are hypothetical. Consult appropriately qualified professionals before making decisions.