Cash Value Life Insurance is a policy where a portion of it provides death benefits and the remainder helps in earning interest on the policy. Hence, this insurance policy is considered to be a savings as well as a protection plan. There is a higher premium on this type of insurance when compared to the protection-only plan. The returns on savings are also considerably small and it depends on the policy and the issuer.
Cash Value Life Insurance was not considered to be a good investment earlier but was consistently pushed due to the excellent marketing techniques that were used earlier. This insurance often used practices to mask the drawbacks of the policy. However, the situation is no longer the same now and things seem to have changed for the better due to the widespread competition offered by other major companies such as Universal Life as well as the interest-sensitive Whole Life. Both these types of insurance policies pay very good interest on the cash value part of the policy. These policies make for excellent investment options due to lack of federal taxation on the interest earned on these policies. There is no tax that is paid on these earnings even if they are held until death. If the investor is in need of funds, they can simply borrow from this policy instead of cashing it. This way they can still continue to avoid taxation.
Cash Value Life Insurance and Permanent Life Insurance are terms that are used interchangeably since the cash value component is there on almost all permanent policies and all permanent policies have the cash value component. However, there are exceptions to the rule but they are rare and are generally offered by a handful of insurance companies these days. These two insurance policies can however, be treated as one and the same.
In Permanent Life Insurance the coverage continues until the death of the policyholder as long as the premiums are paid. But under the Term Life Insurance, if the insured continues to live beyond the term of coverage then the policy will conclude and there will be no death benefit that would be paid.
Although the death benefit guarantee prevails, not all Permanent Life Insurance policies can last indefinitely. The traditional whole life insurance policy can even terminate or pay the death benefit while the policyholder is still alive. However, the Universal Life Insurance policy persists as long as the policyholder is alive.
Prior to purchasing Cash Value Life Insurance or Term Life Insurance you must consider the pros and cons. If you are looking for just a basic low cost plan then choosing a Term Life Insurance is pretty good as you can get some amount of life insurance for a specified term. This is a good choice for those with fixed income.
Cash Value Life Insurance is beneficial as it helps build cash value but is more expensive as compared to the rest. Itis a good investment option but if you require protection, then buy term 10 or 20-year level ‘premium term policies’ that are available.
