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A life insurance policy with cash value may be considered to be an investment. At some companies, a portion of the premiums are put into a cash savings account, earning interest with potential tax savings.1 Aflac’s plans function differently, but still offer a variety of benefits like portability and renewability. Some life insurance plans with cash value allow the policyholder the option of withdrawing funds that can help pay for necessary expenses.
The textbook definition of life insurance with cash value is not limited to one type of life insurance. The cash value aspect can function in a variety of permanent plans, including whole, universal, variable, and indexed life insurance.
The two main components that make up a life insurance policy are the death benefit and the cash value. The death benefit is the part of the plan that the beneficiaries receive later on. You can predetermine what you would like this face value to be upfront. At some companies, the cash value of the life insurance policy grows separately in a tax-deferred account.2 Aflac utilizes a different route, so it depends on your preference.
The cash value portion of this life insurance plan can be particularly appealing because you may be able to access the money early. One can do this by taking out a loan against the policy, surrendering the policy, or making a withdrawal.3
Many people think the cash value portion of the life insurance plan may limit their options. However, there are a variety of permanent policy types that can operate with this feature. Typically, term life insurance does not have cash value, but it can save you money upfront if planned wisely.
Below are a few types of life insurance policies that may have a cash value portion. Knowing your options is crucial when making key decisions about which life insurance plan will work best for you.
Whole life insurance is a type of permanent insurance that lasts the entire life of the policyholder, with premiums being paid regularly. It’s believed that whole life is one of the most popular choices in the life insurance market. The cash value of whole life insurance can still grow with potential tax savings, and the death benefit is guaranteed, so long as the premiums are paid (subject to limitation and exclusions). The premiums in this type of plan are usually fixed.
Aflac offers a whole life insurance plan option that requires no medical exam and is portable, so you can take it with you wherever you go. Get a quote and more information to see if this policy type makes sense for you.
While whole life insurance and universal life insurance have a few similarities, there is one key difference. Many universal life insurance plans allow you the ability to change the value of premium payments.4 This may give you more adjustability in different seasons of life.
With universal life insurance, you can scale the death benefit up or down depending on your unique circumstances.5 The cash value of a universal life insurance policy is helpful because it can be used to pay for the premiums or other expenses, as needed.6
Variable life insurance fits its name nicely, as it has many variables. In this type of plan, you have greater access to investment tools, like cash value.7 This type of plan tends to involve more risk, as the cash value will grow or diminish depending on how the investments chosen are doing.8
This may be a great route if you have experience with investment accounts, are comfortable taking risks, and aim to grow your cash value over time.
An indexed life insurance plan has a greater relationship with the stock market, as this is what is used to determine growth.9 How the index chosen performs directly impacts the rate of return on the cash value within the life insurance policy.10
While there is a certain level of risk involved in an indexed universal life insurance plan, you can typically still secure a guaranteed minimum interest rate.11
Don’t wait until it’s too late. Help cover yourself and your family with affordable coverage from Aflac.
One of the major appeals to a cash value life insurance plan is the ability to access the money while you are living.12 There are a few different ways this can happen, but it depends on your specific plan and the insurance company you choose.
Term life insurance usually does not have a cash value, but if you are interested in one of the permanent types above, you may have more options.
Some life insurance plans allow you to tap into the cash value of the account to pay for the premiums.13 This can be particularly helpful if new and unexpected expenses arise in other parts of one’s life. This may impact the value of the death benefit over time, so we advise you to consider your options. Not all insurance companies allow this, so we recommend you chat with an agent.
Another way to access money from your life insurance policy is taking out a loan against the cash value of your plan. This can allow you to borrow the expected cash value of your plan, without surrendering the plan. Outstanding loan amounts may reduce the death benefits in the event of a the death of the policyholder before the full repayment of the loan, so we advise you speak with a financial professional.14 Not all plans work the same way, so chatting with an agent about how your life insurance plan works is crucial.
Some insurance companies will allow you to withdraw money from your policy’s cash value savings account. We recommend you do not take out more money than what you have paid into the account so far because doing so may reduce the death benefit.15
To access the cash value of your plan, you may have to surrender part of the life insurance policy. Depending on the company and plan you choose, you may be able to withdraw money and only surrender part of the plan. However, this can also decrease the value of the death benefit.16
Having a life insurance plan can help protect your loved ones if your main source of income is lost. Aflac’s whole life insurance plans can help provide for your family long-term and help you in an emergency.
Try our life insurance calculator to see how much life insurance you may need.
Chat with an Aflac agent about your options if you need additional support.
1-3 & 12-16 Investopedia. Cash Value Life Insurance. Updated: May 23, 2022. Accessed: Oct 24, 2022. https://www.investopedia.com/terms/c/cash-value-life-insurance.asp.
4-6 Investopedia. Universal Life (UL) Insurance Definition. Updated: May 28, 2022. Accessed: Oct 24, 2022. https://www.investopedia.com/terms/u/universallife.asp.
7-8 Investopedia. Variable Life Insurance. Updated: Mar 22, 2022. Accessed: Oct 24, 2022. https://www.investopedia.com/ask/answers/08/variable-life-insurance.asp.
9-11 Investopedia. Indexed Universal Life Insurance/ Pros and Cons. Updated: Mar 2, 2022. Accessed: Oct 24, 2022. https://www.investopedia.com/articles/personal-finance/012416/pros-and-cons-indexed-universal-life-insurance.asp.
Content within this article is for informational purposes and does not constitute legal, tax or accounting advice regarding any specific situation. Coverage may not be available in all states. Benefits/premium rates may vary based on state and plan levels. Optional riders may be available at an additional cost. Policies/riders have limitations and exclusions that may affect benefits payable. For complete details, including availability and costs, please contact your local Aflac agent. In Idaho, Oklahoma, and Virginia, Policies ICC64100–ICC64300 and ICC64500; Policies ICC1368100–ICC1368400; In Arkansas, Policies A64100AR-A64300AR and A64500AR; Policies ICC1368100–ICC1368400; and Policy Q60100CAR. In Idaho, Policy Q60100CID. In Oklahoma, Policy Q60100COK. In Arkansas, Idaho, and Oklahoma, Policies ICC18Q60200C, ICC18Q60300C, ICC18Q60400C.
Aflac coverage is underwritten by Aflac. In New York, Aflac coverage is underwritten by Aflac New York.
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