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Guaranteed Cash Value
The cash value account is part of a permanent life insurance policy. This type of insurance encompasses
whole life insurance or endowment insurance. The basics for this type of never ending policy is that the
policy lasts for a lifetime, the account holder accrues cash value and his beneficiaries get the face value
of the policy upon his death. In contrast, term insurance does not have a cash value, only a face value.
The policy only lasts a specified number of years before either expiring or being renewed. Renewals cost
extra fees and the policy holder will have to pay a higher premium on their econimic whole life insurance.
Cash Value Cost
The cost of a permanent life insurance plan is higher than a term policy. The reason is not only because
of the lifelong coverage, but the fact that the person is paying for both the face value and cash value. A
permanent life insurance policy is also more flexible - the policy holder can choose to pay the premium in
whole, in lump sums, or monthly. He can choose a "participating" plan, in which he receives yearly
dividends, or a non-participating plan, where the premium amount remains the same throughout the life of
Cash Value Benefits
People like whole life insurance policies for several reasons. One reason is that they do not have to pay
renewal fees, since the policy is never ending (or ends when the person becomes a senior of 100).
Another benefit of a whole life insurance policy is the cash value. Cash value is the extra account that
comes with your life insurance policy. Every time you pay your premium, part of that money goes into the
cash value account. Over the years, the cash value accrues significantly. The insured individual can tap
into this account via loans or get outside loans by using the cash value as collateral. The insurance
company likes cash value accounts because they can earn interest from them.
Another good feature of the cash value is that if the insured person cancels the life insurance policy, he
gets back some the cash value, minus any surrender charges. The cash value is a guaranteed account.
Even if the account is cancelled and the beneficiaries do not receive the face value, they will get part of
the cash value. If the company goes out of business, the policy holders still get some or all of their cash
value back. However, the face value will go back to the company. Policy holders can use their cash value
accounts after a few years. The initial payments toward the cash value go toward covering setup fees.
Also, there is not much money in the account in the first few years.
Insurance companies will show the policy holder the guaranteed amount of cash value they will get back
if they cancel after one year, ten years, twenty years, etc. The longer the policy holder keeps his policy,
the more cash value he will get back if he cancels. This is actually dangerous for the insurance company
if the guarantee amount is more than the economic value of the policies.
You should feel safer knowing about the guaranteed cash value. Your investment with the company is
safe up to a certain amount. The cash value is just another incentive for a person to choose a whole life
insurance policy. It offers "living benefits," which means you can use the money during your lifetime. If
you want to try to get a higher death benefit without paying a higher premium, compare economic whole
insurance quotes and rates.