Finding the perfect life insurance policy can be difficult because of the abundance of choices. Life insurance companies offer different packages and deals, but you will also select your life insurance based on age, health, financial status, etc.
To buy the right life insurance, you must know your options. First, we will show you different life insurance policies and see which ones generate immediate cash value.
Types of Life Insurance Policies
There are two main types of life insurance policies:
- Permanent life insurance
- Term life insurance
Each of these types has variations that separate them from the others. Not every policy is perfect, but there are better and worse options.
And this time around, we want to know which type of life insurance policy generates immediate cash value? Let’s take a closer look!
Permanent Life Insurance Policies
As the name suggests, permanent life insurance lasts for life. Your life insurance coverage stops only when you stop paying premiums, but you can still access cash accumulated over the years.
Permanent life insurance also goes by the name of cash value life insurance because a large part of the premium payments goes to the cash value and not only death benefits.
There are two main types of permanent life insurance policies:
- Whole Life Insurance
- Universal life insurance
Universal life insurance can be:
- Variable universal life insurance (VUL)
- Indexed universal life insurance (IUL)
Term Life Insurance Policies
Term life insurance is the simplest form of life insurance, and many people buy it because it is less expensive than permanent life insurance and pays off the death benefit to the deceased’s family.
Term life insurance usually lasts between 10 and 30 years, and there are two common types:
Both of these refer to the death benefit. With level-term life insurance, the pre-agreed cash amount is paid to the family members after the policyholder dies. For the decreasing term, the cash sum reduces toward the end.
Why Doesn’t Term Life Insurance Build Cash Value?
Contrary to cash value life insurance (permanent life insurance), term insurance is considered “pure.” When you pay premiums, they go towards your death benefit, which is paid to your family members after you die.
Also, the policy is active only during the set term. Since it doesn’t come with a cash value component, term life is less expensive and, therefore, more widely spread. Some permanent life insurance policies cost six to ten times more!
Therefore, if the death benefit is the only thing you are looking for, you can definitely go with term life and not overcomplicate things.
If you are looking for the answer to what type of life insurance policy generates immediate cash value, you now know it is a permanent life insurance policy.
But the four types we mentioned function differently, and not all of them allow you to access the policy’s cash right away, so let’s get into these nuances by analyzing each policy’s cash value component and other aspects too.
Whole Life Insurance Policy
A whole life insurance policy is a type of cash-value life insurance that most life insurance companies are eager to sell.
Why, you may ask?
With the premiums paid, a part of the money is allocated to the cash value, while a portion goes to the death benefit.
The cash value component is usually used as the savings account. It allows you to store your money indefinitely, and the accumulated cash value can be used at any point.
3 Things You Can Do
- Withdraw cash directly from the policy – When you withdraw cash from your cash value, you disrupt the growth, but you can use that money to cover expenses, buy a new car or pay off loans.
- Surrender the policy to get the cash surrender value – Let’s say you have multiple life policies and can no longer pay for one. You can surrender your policy to receive the cash surrender value, but this should be the last resort, as you may pay the surrender charge.
- Take loans from your life insurance company – Another option is to take policy loans using the cash value as collateral. Policy loans are not the same as bank loans. When you take a loan from your insurance company, you will have an indefinite time to pay it back. If you don’t, they will take money from your cash value. Obviously, you need to have money in your savings account to get the loan in the first place.
Whole Life Insurance Generates Immediate Cash Value
A whole life insurance policy builds immediate cash value. You start accumulating cash in your policy with the first premium payments.
However, accessing your cash value may take a little time, but there are two things you can do to reduce the waiting time.
- Overfund your life insurance policy – In simple terms, overfunding your life insurance policy means paying your premiums in advance and more than necessary. This will create significant cash value quickly, which you can use as leverage. You have to be careful not to go over the MEC line and turn your policy into a modified endowment contract that would lose you some tax advantages.
- Paid up-additions rider – With the paid-up additions rider, you can accelerate cash value growth, which means you wouldn’t wait as long to access your money.
Not only does the whole life insurance policy generate immediate cash value, but you will also get the guaranteed death benefit. The policy will help you save money, but also use it to cover any potential medical expenses or spend it in other ways – all of that while you make sure your family receives a hefty amount of money after you’re gone.
Universal Life Insurance Policy
Another type of cash-value insurance is the universal life policy, which has similar characteristics to whole life insurance. This permanent life insurance policy offers cash value accumulation and lasts for life.
When you die, the money goes to your family members or other beneficiaries that you named. However, with this permanent life policy, the death benefit can be adjusted, and the premiums are flexible.
Universal Life Generates Immediate Cash Value
Since the cash value component is available in universal life insurance policies, with each premium paid, you allow the money to grow from the moment you get your policy.
However, we need to explain flexible premiums and adjustable death benefits, as they sound appealing.
Flexible Premiums and Adjustable Death Benefit
With flexible premiums, you can reduce them or even stop paying them for a while. In that case, your life insurance company will dip into your cash value and take the money to cover the payments.
Although this can be beneficial, there are some negative consequences, too. If you are not on track with your finances and how much you have left in your cash value, your life insurance coverage can end, and the policy lapses.
And this is one of the main reasons why this product isn’t used for lifestyle banking. When it comes to money, flexibility isn’t your friend. You need to set reasonable goals with what you do with your money and how you recapture interest. Flexibility gives you the room to wiggle and you risk falling back on the old habits just because you can.
Also, you don’t want to stir the waters too much and use the cash value money for your premiums simply because you are trying to save as much as possible to borrow outstanding loans and generate more wealth.
Furthermore, this cash-value life insurance policy gives you a say in the death benefit value. Depending on your needs, you can increase or decrease its value. If you need a significant death benefit, you will have to do a medical exam first, but you can always reduce it and pay less in premiums.
VUL and IUL
Variable universal life and indexed universal life policies both come with a cash value portion and death benefit protection.
This isn’t surprising, as these two cash-value policies belong to universal and, therefore, offer permanent life insurance. Although they have immediate life insurance coverage, they also come with a cash value account.
The cash value account comes with an investment feature, and the policy’s cash depends on the market. With these policies, you invest in stocks, and bonds, hoping to improve your finances, but nothing guarantees the market will be on your side.
The market volatility can really hurt you, especially considering today’s market, which can be pretty unstable. The last thing you want to do is enter any financial improvement program that will cost you losing your money. You need guaranteed growth, no matter how small it may be, as this is the safest way to improve your finances.
Which type of life insurance policy generates immediate cash value from universal options? They all do, but because of the market uncertainty, they aren’t the optimal choice.
What About Guaranteed Issue Life Insurance?
There is another insurance we didn’t mention: guaranteed-issue life insurance.
Guaranteed life insurance offers a small coverage, and even with the cash value, the money accumulation is insignificant to address for this article’s purpose.
Get Your Cash Value Life Insurance Policy From the Mutual Insurance Company
Since more than one type of life insurance policy generates immediate cash value, it is time to select the right one.
Immediate cash value isn’t an option with a term life insurance policy. VULs and IULs are too risky because your cash value is directed toward the investments. With the universal insurance policy, the flexible premiums are a disadvantage, especially if you want to build cash.
All the top life insurance companies recommend whole-life insurance policies for a reason. You have fixed premiums and guaranteed growth if you pay everything on time. Although expensive, this life insurance policy provides safety and predictable growth, allowing you to use cash over time and live more comfortably.
If you are more interested in the investment options that insurance policies provide, consult with your insurance agent to find the best solution. Keep in mind that the cash value of investment-oriented policies is subject to income tax.
Either way, you need to search for mutual life insurance companies for your insurance policy because they pay yearly dividends, something stock companies don’t do.
This is another way to make the most of your whole life insurance policy.
Become Wealth Conscious
Now that you know which type of life insurance policy generates immediate cash value, it is time to join us on our wealth consciousness journey.
Whole-life is the only cash-value life insurance that can help you create generational wealth and provide financial stability.