If you’re looking into life insurance policies, you might consider a whole life or cash value life insurance policy. You can tap into several benefits with a cash value life policy, and one of the most important is the portion of the policy that has a value that you can access when you are still alive. You can choose what you wish to do with the cash value portion of your policy, but you’ll face limits and caveats on how and when you can access the money. Plenty of quality insurance carriers offer cash value and whole life policies.
The Best Cash Value Life Insurance Carriers
The company that you purchase your cash value life insurance policy from is almost as important as the policy that you choose. Taking into consideration the policies offered and the riders available, the following are the best cash value life insurance carriers.
Northwestern Mutual offers 3 types of whole life policies, including traditional whole life, variable whole life and blended whole life. The traditional whole life policy accrues cash value like any other whole life policy while the variable whole life policy has a value tied to the stock market’s performance.
The blended whole life policy is a combination of whole and term life. This policy gives you whole life features eventually, even though it starts out as a basic term life policy. The whole life death benefit minimum is $25,000 for life policies. This provider also offers a good number of riders that can be added, which allows you to better customize your policy.
MassMutual offers policies with riders that can customize your policy to meet your needs and your insurance budget. It offers a number of policies which all differ on the amount of years that you need to pay premiums up to age 100. All MassMutual’s policies are eligible to receive dividends, which can help you compound the return on your initial insurance investment. MassMutual offers an accelerated death benefit rider as well as a renewable term rider.
New York Life
New York Life has been offering life insurance policies longer than any other company on this list. The two whole life policies it offers are whole life insurance and custom whole life insurance. The whole life insurance policy provides guaranteed coverage with cash value accumulation. The custom whole life policy allows you to take advantage of the cash value and lessen the number of years you need to pay premiums out of pocket. You can also maximize your cash value and pay premiums for as little as five years. New York Life also offers unique policy riders, including a rider for chronic care.
State Farm offers several whole life policy options, including a policy option that guarantees coverage for life with unchanging premiums. Other options available from State Farm include a single premium life policy that allows you to pay upfront for the policy with a single premium payment, limited pay life that allows you to pay off the policy in a number of years and final expense that is designed for older customers who need their end of life costs covered. Several riders are available, and policy owners have the opportunity to maximize their return with dividends.
Guardian offers two options for its whole life insurance policies. One option is level premium insurance, which is a type of policy that has stable premiums that don’t change. Guardian Life also offers limited pay insurance, which allows you to pay for the entire policy in a certain short period of time. Policies are able to receive dividends, and Guardian does not automatically deny coverage to applicants living with HIV. The minimum death benefit in order to get a whole life policy from Guardian is $25,000.
What is Cash Value Life Insurance?
Cash value life insurance is a type of permanent life insurance, otherwise known as whole life insurance. Whole life insurance is a life insurance policy that offers coverage for life. This means that no matter when you die, your beneficiaries will receive your death benefit as long as you continue to make your premium payments on time and you don’t lie on your initial application.
A cash value life insurance policy also includes an investment feature in the form of a cash value. The cash value grows as you pay the policy’s premiums, as a portion of the premium is put into the cash value part of your policy every time you make a monthly payment. Over time, this money can compound and become an important component of your retirement savings. Though cash value policies are significantly more expensive than term life insurance options, this saving and investing component helps you to recoup a portion of the money that you spent on premiums, which you can access during your lifetime.
The cash value earns tax-deferred interest and most insurance providers, depending on the policy, allow you to withdraw cash or borrow against the cash value. This feature essentially allows your whole life insurance policy to double as an investment and a savings account that you can use while you’re still living. All life insurance policies have a death benefit, but not all of them have a cash value. If you’re interested in this type of policy, remember to shop for permanent life insurance coverage.
Benefits of Cash Value Life Insurance
While most people take out a life insurance policy to aid their family once they're gone, a whole life policy actually has more to it. A cash value insurance policy can include the following.
Accrues cash value: The main benefit of this type of policy is the accruing of the cash value itself. This feature is considered a living benefit because you are able to access the cash value while you’re still alive. The cash value is stable and will never decrease on its own like other investments in assets like mutual funds or stocks. You can make tax-free withdrawals from it as long as the amount withdrawn doesn’t exceed the amount you’ve paid in premiums.
You can borrow against it: You are able to borrow against the cash value of your policy in addition to withdrawing the money. The loan that you take out against the value of your policy typically isn't considered taxable income as long as the amount that you borrow doesn’t exceed the total amount of money that you’ve paid in premiums into the policy. However, you should keep in mind that you must pay the loan back while you are still alive. If you die before you fully pay back the loan, your insurance provider will take the remainder from the death benefit that your beneficiaries are entitled to.
Invests and grows your money: A cash value life insurance policy is a solid investment. You’re no longer just paying premiums for a death benefit, but you’re actively earning interest on your policy which grows your money. Over time, your whole life insurance policy can become an important source of funds for retirement.
Still has a death benefit: While the cash value aspect of this whole life policy is a major benefit, your beneficiaries will still receive the death benefit, which is why most people purchase life insurance in the first place. With a whole life insurance policy, your beneficiaries are also guaranteed to receive the death benefit, no matter when you die.
Serves as a sort of retirement plan: While you’re still alive, the cash value basically serves as a savings account that can be accessed when you’re retired and don’t have a steady income anymore.
Who Needs Whole Life Insurance?
Though a cash value life insurance policy can be an appealing investment vehicle, these policies are not for everyone. Because the death benefit of a whole life insurance policy is guaranteed to be paid out, these policies are significantly more expensive each month when compared to term life insurance options. Be sure to get quotes for both term and permanent life insurance before you invest in a policy to be sure that you’re choosing an option that fits with your home’s budget.
Frequently Asked Questions
What is cash value in life insurance?
The cash value portion of a life insurance policy is essentially a savings account that you can access while you’re still alive. The cash value accrues over time with your whole life insurance policy and allows you to borrow against it, use it to pay premiums and access other opportunities.
Who gets the cash value in a life insurance policy?
The policy owner gets to borrow against the cash value or withdraw a certain amount while still living; however, when the policy owner dies, the insurance company absorbs the cash value while your beneficiary receives the death benefit only.
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