What Does Building Cash Value Mean?
Building cash value in insurance means accumulating money in a permanent life insurance policy. Permanent life insurance policies, such as whole life and universal life, have a cash value component that grows over time. This cash value can be accessed by the policyholder while they are still alive, and it can be used for a variety of purposes, such as retirement income, paying for a child’s education, or covering unexpected expenses.
Cash value builds in a permanent life insurance policy because a portion of each premium payment is invested in interest-bearing accounts. The exact rate of return on the cash value will vary depending on the type of policy and the insurance company, but it is typically around 2-4%.
There are a few things that policyholders can do to maximize the cash value in their permanent life insurance policy:
- Choose a policy with a low surrender charge. The surrender charge is a fee that is charged to the policyholder if they cancel their policy before it matures.
- Pay premiums on time and in full. This will help the cash value grow faster.
- Keep the policy in force for as long as possible. The longer the policy is in force, the more time the cash value has to grow.
Building cash value in insurance can be a good way to save for long-term financial goals, such as retirement. However, it is important to understand that permanent life insurance policies are typically more expensive than term life insurance policies. This is because permanent life insurance policies offer both a death benefit and a cash value component.
If you are considering purchasing a permanent life insurance policy, it is important to compare quotes from different insurance companies and to work with a financial advisor to make sure that the policy is right for your individual needs.