15 Reasons Why Life Insurance Cash Value Is Awesome

There are two basic types of life insurance: temporary and permanent. Permanent life insurance builds cash value and here are 15 reasons why life insurance cash value is awesome.

1. Guaranteed growth

Every life insurance policy has an illustration created prior to doing an application. The illustration shows the costs of the insurance and with permanent life insurance, it lists a guaranteed cash value growth section. So long as premiums are paid the cash value will grow as shown in that column.

2. Grow faster by using the cash value

The cash value is your personal or business funds therefore you have the right to use it however you see fit. By taking loans against your cash value and using it for investment purposes like buying products, real estate, or other cash-generating investments you can accelerate the growth of the cash value.

You do this by paying your policy back the money that you borrowed against it plus a competitive interest rate. Instead of going to a bank to get a loan for your purchases and paying them interest, this method allows you to earn that interest yourself instead.

For example, if you were to take a car loan for $10,000 from a bank and after paying the loan off it was $12,000 you could have instead put an extra $2,000 into your own cash value life insurance policy.

3. Protect your money from creditors

A life insurance policy is not considered an asset in the manner that your home or cars are. In that, creditors are not able to put liens or in any way touch the money that is accumulating in your life insurance policy. This can be a major help through financially challenging times allowing you more flexibility in negotiating with them while still building your income to get out fo the financial troubles going on.

4. Unpaid loans are not lost death benefit

When you take a loan against life insurance and pass away before paying it back to yourself, the remainder is removed from the death benefit that’s paid out. However through using the cash value you’ve essentially used that amount of death benefit while alive.

5. Fixed level premiums

While this isn’t directly about the cash value itself, it affects the cash value. Premiums on insurance policies include a portion of risk and liability for the insurance carrier. With cash value, life insurance as the cash value increases their risk decreases. Meaning that over time you start to see more and more money go towards cash value growth, in fact, they get to a point where the cash value growth exceeds the premium value paid into the policy for the year!

Another benefit this provides is some flexibility during hard times. Specifically, in that, there is a minimum value of the premium you need to pay in order to maintain the life insurance policy for the year without affecting its status. In paying the minimum it will alter the cash value growth shown in your illustration but if something is happening financially for you then this may help you keep the policy and get through the rough times.

6. Tax-advantaged

Life insurance policies use after-tax dollars in their premium payments, therefore the distribution of the cash value afterward is tax-advantaged.

7. Loans aren’t taxed

Building cash value in your policy and then taking a loan against the cash value is not a taxable situation. So you could use the cash value to go on some shopping spree if you like, buy yourself a perty dress or sweet car and no taxes.

8. Earn dividends

While not guaranteed, many insurance companies that offer permanent life insurance options that build cash value have paid dividends to policyholders for decades. Even during many economic problems, some even during the great depression. Dividends are not guaranteed but are extra earnings the company had for the year that are distributed to policyholders, many of whom choose to get them in the form of extra cash value.

9. Riders to increase cash value

You can add riders to life insurance that alter its use. A paid-up additions life insurance rider for a whole life policy will increase its death benefit which allows you to add more cash value to the policy without it becoming a modified endowment contract. What this means simply is that you can maintain a tax-advantaged status with your policy and continue growing its cash value without having to get another policy.

10. Build financial certainty while alive

Leveraging the cash value in your policy and purchasing investments will allow you to generate passive or residual income now. Over time this income growth can be used to buy more and more policies and more and more passive income streams. This is how wealth is created and passed on from generation to generation.

11. Premiums are a business expense

If you have whole life policies in your business they can be considered a business expense. For business owners or those looking to become business owners, you know that showing expenses can sometimes make the difference between being profitable for the year and not.

Many companies use whole life insurance policies as a means to accelerate or grow the company’s money. A whole life policy essentially allows you to keep control of your money earning interest on it as it goes into the policy, but then allows you to use or leverage that money to buy the products needed to operate the business.

12. Convert to annuity

Using a 1035 exchange option you can convert one contract type to another. If you decide to do this with your whole life policy it may help generate monthly income a little higher than what you could get from the policy itself. It MAY be a good option depending on the circumstances for you at the time.

13. Convert to long term care

As we all get older the last thing we want to have to happen is for us to require assistance in getting out of bed, let alone other daily tasks. That being said we know that it does indeed happen. In the event that such a thing may occur you can take your policy and convert it to a new policy with long-term care included. This and the above option would reduce many of the advantages a cash value building permanent life insurance policy has but given the medical care some need it may make sense

14. Use as collateral

If you are trying to purchase a home and are having a hard time getting approved, then you may be able to use the cash value as collateral to qualify. In some cases, you can use the death benefit as collateral depending on the bankers, though in either case be careful how you structure the deal. Locate a suitable professional to ensure it’s good for you, not just the bank.

15. Pay the premiums

Let’s be real, sometimes things go badly and we find ourselves not earning what we would like or expect. In these cases, you can use the cash value in your policy to pay the premiums until you get back on your feet. I suggest this is an absolute last resort, in that you have already sold stuff, begged, and borrowed to stay afloat.