With so many types of life insurance policies to choose from, you need to look for one that can generate cash value quickly and efficiently. Whole and universal policies are the only types of insurance policies that will produce a cash value account that can be used by the owner of the policy. A cash value account is set aside from the actual death benefit. The money put into the account is often used for investments and can raise the overall value of a policy over a long period. The policy owner also has the option to tap into the cash value of a policy if an emergency arises.
Cash Value on Life Insurance
When you open a whole life or universal life insurance, you are set up with a traditional life insurance policy and a cash account that is used for investments and to build equity. When you pay your premiums, a portion of your money goes toward your life insurance policy, and the rest goes into your cash account. All of the money put into your cash account generates revenue, either in the form of interest or as dividends. As a result, you will begin to build equity almost immediately.
Policies That You Can Borrow From
There are only two types of policy that offer a cash value option-whole life insurance and universal life insurance. Whole life policies build equity through the premiums you pay each month. The equity goes toward the death benefit portion of the policy. Universal life policies work the same way, only that they include a cash account that can be borrowed against once enough equity has been accumulated. Every time you pay a monthly premium, part of the money will go directly into the cash account.
Using Life Insurance as a Source of Income
Many whole and universal life insurance policies include a living benefit clause. Others have a cash account that you can tap into in case of an emergency. While the equity normally isn’t to be used as a regular form of income, it is available if you need to draw funds out of the account for emergency purposes. The longer you leave the money in the account, the more interest it will accumulate. The same is true of a universal cash account that increases with dividends.
Factors Affecting a Policy’s Cash Value
The primary factors that influence your policy’s cash value are the length of time you’ve had your policy, how much your monthly premiums are, and how strong the economic markets are. It stands to reason that the longer you pay into your policy and the higher your premiums are, the faster your policy’s cash value will increase. The stronger the economy, the higher your dividends will be on any investments made using the money in your cash account.
Can I Generate Immediate Cash Value from My Life Insurance Policy?
No whole life or universal life policy will provide equity immediately. It will take from six months to a year to accumulate enough equity to borrow against the account. Your account will have to be open for a year or more before it has enough equity in it for you to draw off of it. To generate enough cash value for you to borrow against it, you will have to leave it in place for a few years without touching it.
Before you make a final decision on which life insurance policy to buy, contact an agent to help you figure out which one is best for you and your family. Contact our experts at Udell Family Insurance today! Each agent has been trained to look at a client’s needs and create an insurance plan that will help them achieve all of their financial goals. Call today and schedule an appointment so you can begin investing in your future.