Some types of life insurance in NJ have an investment feature called a cash value. This part of your policy earns interest and may be available for you to borrow against one day. While there are different life insurance policies, the most common one you’ll come across is whole life insurance. Term life insurance, on the other hand, does not have a cash value.
If you’re interested in taking out a whole life insurance policy, you’ll be pleasantly surprised by how much money you can earn over the years. It’s an excellent asset that builds tax-free wealth - and there’s not much you need to do but pay your premiums!
It’s also worth noting that whole life insurance offers “limited pay.” This allows you to pay your premiums for a limited number of years. Once you’re paid up, your cash value and death benefit will continue to grow, and the benefits will last a lifetime.
How Does the Cash Value in a Life Insurance Policy Work?
Permanent life insurance policies generally offer two features:
- Death benefit. The death benefit is the amount that’s paid out to the beneficiary when you pass away. Usually, the death benefit is the amount of life insurance coverage you purchased when you set up the policy.
- Cash value. The cash value is an added feature of your policy that builds value. A small amount of your monthly premium goes into this (the rest goes towards the death benefit and other fees). This portion of your policy is tax free and earns interest over time.
Am I Able to Access My Cash Value?
It is possible to access your cash value when you need it, but it does depend on your policy. Also, keep in mind that when you borrow against your policy, it can reduce your death benefit. Generally speaking, there are three ways to access your cash value:
- Make a withdrawal. A common way to access your cash value is by making a withdrawal. You can usually do this tax-free and without penalty, though you don’t want to exceed the amount you’ve paid in. Otherwise, this extra money will be taxed as income.
- Taking out a loan. Another way to borrow money from your policy is by taking out a loan. You can usually borrow up to the cash value on your policy, including accrued interest and paid premiums.
- Surrendering your policy. If you cancel your life insurance policy, you’ll have equity that you’re entitled to. But, be careful about “surrender fees” and income taxes. Also, it’s a good idea to replace the policy, as you won’t have coverage.
What are the Benefits of Cash Value Life Insurance?
If you are considering cash value life insurance as an asset, you’re probably wondering what the benefits are. Whole life policies are not cheap, after all, so you want to be sure that you’re investing your money into the right places. A financial advisor in New Jersey can help determine the best options for you, but here are some benefits to expect:
- Cash value grows tax-free as long as the money stays in your account
- Fixed premiums for life
- Permanent coverage - your policy will never be cancelled as long as you pay your premiums
- Ability to borrow against your cash value
- Death benefit that pays out to your beneficiaries if you die
If you are interested in whole life insurance, contact Leonard Financial Solutions today for a free life insurance quote in NJ. We have solutions for everyone based on your needs, financial goals and budget.