What Is Cash Value Life Insurance?
There are two main types of life insurance policies that a person can purchase. Most people are familiar with term life insurance, and the other type of policy is called cash value. Cash value can come in a wide variety of names such as whole life insurance, variable life, universal life insurance, and many others. But, they are all cut from the same cloth. Cash value life insurance has a cash value portion usually in the form of a savings plan or investment plan. That is why they are called cash value life insurance policies. A policy holder who purchases a cash value life insurance policy will most likely hold that policy for the remainder of his or her life. There are a few examples of times when the built up cash value can be used to pay premium payments, but in most cases, cash value policy is a permanent life insurance. Because it is permanent life insurance and has an investment or savings plan attached to it, cash value life insurance is typically a much more expensive option than its term life insurance counterpart.
What Is Term Life Insurance?
Term life insurance gives the policy holder life insurance protection for only a certain amount of time. That term can be a long term such as twenty or thirty years, or the policy holder can purchase short term life insurance for terms as little as six months or less. Most short term life insurance policies are sold in yearly, five year, or on a ten year term. Any term over ten years is often considered a long term life insurance. But, no matter when the life insurance expires, these are all still examples of term life insurance. At a certain point on the calendar, the life insurance policy will end when the term is over. Term life insurance is a very cheap alternative to whole life or cash value life insurance policies. Term life insurance policies provide holders with excellent coverage with large payouts that cost only a fraction of the premium costs associated with other permanent insurance policies such as cash value.
Cash Value Vs. Term Life Insurance?
Cash value life insurance policies are sold by life insurance agents for a host of reasons. Not only do these types of policies generate some of the largest commissions for the insurance agents, but they will tell potential clients that these cash value policies will provide them means to guarantee their insurability should something happen to them later in life and they cannot renew a term life insurance policy. Insurance agents will also praise these plans’ ability to force policyholders to save money through the built in savings plans. The only problem is that the investments in these policies are very conservative and do not normally keep up with inflation. The costs associated with the cash value policies also make it a very hard sell for many people who are looking for insurance. Cash value life insurance, or permanent life insurance, is a good way to continue having insurance forever should you want to leave a legacy to heirs or continue to insure someone who has a disease that would make them uninsurable in the future should they need new life insurance.
On the other hand, term life insurance is almost always a better choice for most people for many reasons. Term life insurance provides income protection for a certain amount of time. They are extremely cheap insurance plans because there are no cash value or savings vehicles tied to them. Because most people find their need to support others later in life decrease considerably, the need for a permanent, expensive life insurance policy such as cash value is not required. Most people find that they can adequately provide insurance coverage for a great price for their family through term life insurance. Very few people find that they actually need permanent life insurance. Most adults, as they near retirement age, find themselves debt free, with no mortgage, and no children to look after. If there is no one at the end of a person’s life depending on your income, then you have most likely outgrown the need for life insurance or greatly reduced that requirement. The lack of a permanent need and the cost savings are typically why term life insurance is almost always a better insurance option for most people in the long run.